NORTH BAY BUSINESS JOURNAL EVENT

2008 Going Green Conference: Building, Technology & Practices

Thursday, October 9, 2008, 7:30-11:45 a.m., Doubletree Hotel, Rohnert Park

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Mortgage-related vacancies soften Marin rent hikes

NORTH BAY – It may be a good time to move on up to a deluxe office as a spike in lending-industry vacancies has property owners increasingly willing to make deals with companies brave enough to sign leases.

The rise in the amount of sublease and direct space in Marin and Sonoma counties has convinced major property owners such as The Blackstone Group to moderate full-service class A office asking rents, which were on track to pass $5 a square foot per month this spring in choice southern Marin buildings, such as Drake’s Landing, and back some top rents in Sonoma County toward $2 from $2.50 for newer space.

A few hundred thousand square feet of office space once occupied by home sales-related companies in Marin, Sonoma and Napa counties was put on the market in the first quarter, according to NAI BT Commercial, Orion Partners Ltd., Colliers International and Coldwell Banker Commercial Brokers of the Valley.

The largest of the give-backs from real estate and lending firms was 125,000 square feet at Wood Hollow in Novato that GreenPoint Mortgage officially returned to the market in the first quarter after starting to wind down the office several months before.

However, that vacancy and attractive rates have inspired several local tenants to seek upgrades there, according to Orion President and CEO Bill McCubbin.

For the first time since 2005, the office vacancy rate rose in southern Marin to 11 percent or 11.8 percent per NAI BT’s and Orion’s estimates, respectively.

Yet San Rafael proper enjoyed an improvement in first-quarter vacancy, thanks to leasing at the nearly completed Bayview Landing complex on Kerner Boulevard. Seagate Properties’ 250,000-square-foot second phase of San Rafael Corporate Center began construction in March and is set for completion in October 2009.

The churning process, last seen in the 1980s when businesses were relocating mainly for better leases or space rather than to expand, has characterized the Sonoma County office market for the past couple of years and continued in the first quarter, according to Paul Schwartz of Colliers International. An example of that was CamelBak’s 29,500-square-foot lease for brand-new space at RNM Properties’ South McDowell Landing in Petaluma.

The office vacancy rate in downtown Santa Rosa improved to 15.8 percent in the first quarter from 17 percent at year-end 2007 and fell to 19 percent from 20.5 percent in the business parks near the county airport, and more space was leased than put on the market in both areas, according to Colliers. The rate rose in virtually all other submarkets.

A shot in the arm for the market was the rebirth of medical device developer TriVascular, announced as the second quarter began, in 110,000 square feet previously occupied near the Charles M. Schulz-Sonoma County Airport.

Office vacancy in the business parks of southern Napa Valley was 8 percent in the first quarter, with 36,000 of the 170,000 square feet available being office-warehouse space at in the former OddzOn facility at 50 Technology Court, according to Cushman & Wakefield. Marin and Sonoma counties have a similar skew in office vacancy data. A couple of large-tenant properties in each county represent roughly as much as half of the vacant space.

The largest Napa Valley office deal so far this year was 26,600 square feet leased to New Vine Logistics at 445 Devlin Road, according to Cushman’s Chris Neeb, who was involved in the deal. That plus an 8,000-square-foot expansion by Diageo Chateau & Estates helped put quarterly net absorption for the submarket to 46,000 square feet.

“In the first quarter the office market was stronger than I’ve seen it in a long time,” Mr. Neeb said. Inside Napa, additional office space in the completed Main Street West project and in-progress Napa Square and The Riverfront projects could boost the vacancy rate from 10 percent to 15 percent if the projects don’t gain more tenants than they already have, according to Mike Moffett of Coldwell Banker.

Leasing of light-industrial and warehouse space was relatively light in the first quarter, with net absorption of just 32,700 square feet, according to Mr. Neeb. The largest deal for such space was 36,000 square feet for Winetech, which decided to expand next door to 2515 Napa Valley Corporate Drive.