Let the good times roll, or are we in the home stretch?
There has been a lot of mileage put on this economic engine since August 2009 and the emergence of the recession, but consumer confidence still has good traction. That momentum will drive consumer spending and business investments through 2019.
However, some of the factors that have contributed to the steady economic growth such as government spending or the fiscal stimulus income lifting effects of the tax cuts will dissipate in 2019 rendering a potentially less robust expansion then 2018.
While there have been Congressional gridlock, wild oscillations in the stock market, escalating trade tensions and North Bay natural disasters, these negative impacts have not generated the economic disruption that one would expect to the commercial real estate market. It was feared that it could create uncertainty that could hinder consumer confidence, but the local economy has remained resilient and economically competitive.
California’s GDP growth is outpacing the national rate, fueled by the technology sector. Marin County is outperforming California with low unemployment due to its economic diversity. Health care, construction, financial services and consumer goods bolster employment and economic growth in Marin County. This diversification is paramount if there is another fallout in the technology sector.
San Francisco has 7.7 million square feet of office space currently under construction throughout the metropolitan area, and 78 percent is already preleased. The cost of new construction has become astronomical, and class A office rents have surpassed peak rents established at the end of the dot-com boom of 2000, reaching $7.11 per square foot on a monthly basis.
Marin County in comparison has a total inventory of approximately 7.5 million square feet, with class A office rents averaging in the $3.50 per square foot range. Exceptions are in Greenbrae, Larkspur, Mill Valley and Sausalito, where asking rents have increased to as high as $6 per square foot at one business park.
This should be a draw to San Francisco’s businesses, but until Marin can complete their transit system from the ferry building in San Francisco to the North we have not seen much migration from businesses across the Bay. To the transit’s credit, SMART, has surpassed the one million passenger mark since its inception in June 2017.
Another aspect of potential future growth that 30 other states have endorsed and benefited from is the increase in tax revenue from the cannabis industry. Reports show that this industry could generate an additional $105 billion in revenues between 2019 and 2025 and add 654,000 jobs and 1 million by 2025 nationally. Medical marijuana is still banned in Marin County’s cities but some, like San Rafael and Larkspur, are gradually adopting local marijuana regulation.
Though in Sonoma County, one year after the legalization of marijuana, the thought that legalized marijuana would fill the tax coffers and tamp down the illegal black-market trade, this has not materialized. This is mostly due to the high taxes on sales and unclear rules and regulation and risk of federal shutdown.
Marin County is many years away from the tax benefits of this growing industry. A study in Colorado has found that legalization of marijuana led to 6 percent increase in property values.
Leasing activity was light but steady in the fourth quarter and there is no indication that this activity will change in the coming months. The countywide vacancy rate for office buildings is up this year at approximately 16 percent from 10.5 percent, after an adjustment for a couple large blocks of vacant office space.
North Bay commercial real estate market reports
Read more insights from experts in various product types and areas in Sonoma, Solano, Marin and Napa counties: nbbj.news/crereports19