ccnkf northbay office q2 2012

7/31/2019 CCNKF Northbay Office Q2 2012

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NORTH BAY 3RD QUARTER

SECOND QUARTER 2012 NORTH BAY OFFICE SPACE

MARIN OFFICE

1101 Fifth Avenue, Suite 230 Larkspur, CA 94939

Tel: 415.526.7676 Fax 415.526.7679

SANTA ROSA OFFICE

2455 Bennett Valley Road, C200, Santa Rosa, CA 95404

Tel: 707.583.8400 Fax 707.583.8499

www.ccareynkf.com

Lic #00832933
http://www.ccareynkf.com/http://www.ccareynkf.com/


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Marin County Office Market Second Quarter 2012

Submarket Building

Class

Inventory* Direct

Available

Sublease

Available

Vacancy

Rate

2q12 Net

Absorption

Avg

Asking

Rent

Rent

Change %

Southern Marin Class A 516,877 117,164 11,019 24.8% -6,604 $3.48 -1.7%

Class B 386,798 20,981 0 5.4% 2,400 $ 2.57 -3.6%

Total 903,675 138,145 11,019 16.5% -4,204 $3.32

Central Marin Class A 638,159 55,847 0 8.8% 6,132 $3.64 2.2%

Class B 457,804 15,681 16,460 7.0% -1,406 $2.54 -2.7%

Total 1,095,963 71,528 16,460 8.0% 4,726 $3.41Central San Class A 751,544 96,852 36,131 17.7% -13,924 $ 2.96 1.9%

Class B 516,610 78,378 9,591 17.0% 169 $ 2.18 -1.6%

Total 1,268,154 175,230 45,722 17.4% -13,755 $2.58

North San Rafael Class A 1,439,113 455,696 0 31.7% 16,429 $2.29 1.5%

Class B 659,663 44,813 0 6.8% 2,505 $ 2.03 -0.2%

Total 2,098,776 500,509 0 23.8% 18,934 $2.26

Novato Class A 1,821,774 190,992 482,107 36.9% -214,456 $2.26 0.4%

Class B 607,840 67,611 0 11.1% 7,191 $1.74 -0.2%

Total 2,429,614 258,603 482,107 30.5% -207,265 $2.00

Marin County Class A 5,167,467 916,551 529,257 28.0% -212,423 $2.58 1.2%

Class B 2,628,715 227,464 26,051 9.6% 10,859 $2.07 -0.9%

Total 7,796,182 1,144,015 555,308 21.8% -201,564 $2.47

Rents are based on a weighted average of direct available space for each class and submarket.*Buildings over 15,000 square feet.

Available Spaces by Size and Submarket

Submarket 0- 2,000 SF 2,000-5,000 SF 5,000-10,000 SF 10,000 - 25,000 SF 25,000 + SF

Southern Marin 80 21 11 1 0

Central Marin 32 12 2 1 0Central San Rafael 86 26 7 3 0

No. San Rafael 61 15 8 3 3

Novato 50 42 17 12 5


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Marin County Historical Vacancy Rate vs. Average Asking Rent

Marin County Comparative Vacancy Analysis by Submarket2q2011 vs 2q2012

$2.40

$2.50

$2.60

$2.70

$2.80

$2.90

$3.00

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Vacancy Rate Average Rent

14.6

%

11.2

%

2

5.0

%

22.4

%

21.3

%

16.5

%

8.0

% 1

7.4

% 2

3.8%

30.5

%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

Southern Marin Central Marin Central SanRafael

North SanRafael

Novato

2q11

2q12


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Marin County Historical Average Class A Asking Rental Rates by Submarket

Change in Average Class A Asking Rents from Previous Quarter

$2.20

$2.40

$2.60

$2.80

$3.00

$3.20

$3.40

$3.60

$3.80

$4.00

$4.20

1q05

2q05

3q05

4q05

1q06

2q06

3q06

4q06

1q07

2q07

3q07

4q07

1q08

2q08

3q08

4q08

1q09

2q09

3q09

4q09

1q10

2q10

3q10

4q10

1q11

2q11

3q11

4q11

1q12

2q12

NorthSanRafaelNovato

MarinCounty

CentralSanRafaelCentralMarin

SouthernMarin

-1.7%

2.2

%

1.9

%

1.5

%

0.4

%

-3.6

% -2

.7% -1

.6%

-0

.2%

-0

.2%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

Southern Marin Central Marin Central SanRafael

North SanRafael

Novato

Class A

Class B


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Marin County Office Market OverviewBy Mark Carrington

Marin County has not yet experienced the dynamic recentgrowth seen on the San Francisco Peninsula. Tenant activityhas been anemic in Marin in 2012 and there has been a netaddition of 171,000 square feet of available space in 2012.Economic uncertainty remains, and election year politics hasnot provided tenants with a high level of confidence that theywill experience significant growth soon. An increase of tenanttours with significant size requirements was experience in thesecond quarter. There is some tightness in specific size

ranges in certain submarkets and Central Marin as a wholeenjoys a vacancy rate of 8 percent.

VacancyThe steady decline of Marin Countys office vacancy rate wasinterrupted in the 2

ndQuarter by an increase of 216,703 square

feet of sublease space on the market at the Firemans FundCampus in North Novato. After staying under 20 percent sincethe 3

rdQuarter 2011, the vacancy rate climbed 2.6 percent to

21.8 percent in the 2nd

Quarter 2012.

Market remains very segmented with many small spacesavailable throughout the market and larger spaces clustered inthe northern part of the market. If you are a tenant looking forover 5,000 square feet in Central Marin, you currently have 3spaces to choose from. This distribution is healthy, as most

tenant demand in Marin County is focused on spaces under2,000 square feet.

Leasing Activity & AbsorptionWhile touring activity seemed to increase in the secondquarter, the number of closed office leasing transactionsremained well below normal. In 2011 there were 273 leasestransacted in office buildings over 10,000 square feet in2012. The aggregate size of those leases was 902,279square feet. At the midpoint of 2012, approximately 90leases have been completed in the same buildings with anaggregate size of 164,543 square feet

Net absorption was negligible even if the additional subleasespace at the Firemans Fund Campus is ignored. A number of

significant lease transactions are in progress and are expectedto close in the 3rd

Quarter.

Rental Rates and ConcessionsWith one exception only, Southern Marin, Class A rentsincreased in each Marin submarket. As in recent past, theincrease was slight in the North of the County and dramatic inCentral Marin. A major component in the rent growth inCentral Marin are significant rent increases in Equity Office-owned buildings where rents are likely being pushed in order to

maximize pricing for the Portfolio of Properties that EquityOffice has on the market.

Class B rents saw fractional declines in the north of theCounty, with greater declines as you move south. SouthernMarin saw a 3.6% decline in average Class B asking rates.The fact that higher quality (more expensive) Class B optionshave been leased may, at least in part in part, explain thisphenomenon.

Sales TransactionsThere were two notable sale transactions in Marin County in

the 2nd

Quarter. 1200 Fifth Avenue, an 11,089 square foot office

building, was 65% leased at the time of sale. TheProperty generated 7 offers, 4 of which ended up overthe asking price of $2,250,000. The Property wassold to Jonathan Parker, owner of 1101 Fifth Avenue.

790 Mission Avenue, a 9,500 square foot officebuilding sold to a user/investor for $2,365,000, justunder $250/SF.

The Equity Office Portfolio generated some interest, but itappears that EOP has decided to retain ownership.

Outlook

The huge volume of available sublease space in Novato willkeep a lid on rent growth in Northern Marin for many quartersto come. A significant percentage of that sublease space isminimally divisible and half of the Disney sublease at HamiltonLanding has highly specialized improvements.

With many choices for tenants in most size ranges, tenants arenot able to see the potential in spaces that are not improvedclose to their requirement. Some landlords have createdmarket-ready spec spaces and have proactively painted andcarpeted spaces in an effort to be more competitive.

It is expected that there will continue to be economicuncertainties in the next few quarters which, with thepresidential election, will affect tenant confidence. Recenttouring activity is encouraging and current requirementsexceed 2012 leasing activity to date.

The sale of the Equity Office Portfolio will mean that many ofthe most influential office properties in the market will be undernew ownership. It is not yet possible to predict what effect thatwill have on pricing or absorption on the market, but pricing islikely to be high and desired returns will mean continued strongpricing in those buildings.


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Sonoma County Office Market Second Quarter 2012Sonoma County Office Market OverviewBy: Barry Palma CCIM

Senior Vice President

Small Size deals still dominate the leasing activity asinvestors are still actively searching for and buyingdistressed properties!The Sonoma County office market continues to show promisedominated by the small companies expanding and owner/usersand investors active in the market. The majority of thecompleted leases have been the smaller size leases less than3,000 square feet and the larger leases signed by the main

hospitals. Some firms looking for larger space tend to want tobuy if they can and take advantage of the low interest ratesand below replacement cost values of larger properties.

Vacancy RateOverall the office vacancy rate for Sonoma County is at 22.3%with Class A at 26.8% and Class B space at 18.4%. The lowestvacancy rate is in Santa Rosa Sub market at 19.2% andPetaluma still showing the highest vacancy rate at 31.57 %.

The flex building vacancy rate is currently 14.83% with themajority of the space being absorbed by the high techmanufacturing and R&D and medical device companies. Somerecent expansions include Enphase Energy in Petaluma, andPNI Sensor Corporation in Santa Rosa.

In Santa Rosa the office leasing activity was completed bySanta Rosa Memorial Hospital Hospice leasing 12,000 sf andSutter Medical expanding in 3883 Airway Drive. Others leasesinclude the VA Hospital expansion at the airport area andKaiser Foundation leasing 10,000 sf in two building across thestreet from their hospital.

Rohnert Park has seen a large employer move from SantaRosa. Marmot Mountain signing a 42,000 sf office lease onState Farm Drive and additionally occupying 15,000 sf ofwarehouse space next door. A three building 30,545 sf officeproject recently sold for $60.57 psf. This property is a singlestory office building with high vacancy and was taken back bythe lender.

While many businesses are still seeing profits increase thisyear, the business confidence and motivation to expand andhire more employees is tempered by the negative politicalclimate in Washington and continued concerns about Europeoverlaid by the gyrations in the stock market. Tenants seem totake longer to decide on a location trying to find space thatmeets their specific needs with limited tenant improvements sothey can negotiate more aggressive leasing terms.

Some landlords are offering below market deals to attract aprospective tenant or to keep their tenants in the short term.

In a recent report prepared by Moodys analytics, the regionaleconomic outlook in the short term anticipates in the second

half of the year the recovery will strengthen with labor andhousing markets gradually strengthening lifted by solid demandfor tech goods and specialty wines. Over the long term, thetech, R&D and healthcare with expand This will allow thebusiness services sector continue to expand all of whichshould increase leasing activity and absorption of office andflex space. The encouraging part is there are some largetenants in the market now looking to finalize leases in the nextfew quarters which should result in more positive absorption in2012.

Owner/User buyers will continue to take advantage of lowpricing and favorable financing to lock in low occupancy costs.Equity Office , in addition to listing its Marin Portfolio for sale, ispreparing to bring its remaining Sonoma County assets to

market. Also poised to hit the market are Skip Bergs portfolioof Stony Point Office Buildings.

Note about Sonoma County Market Data

In order to more accurately and completely report the state ofthe office market in Sonoma County, Cornish & CareyCommercial Newmark Knight Frank has significantly reviewedand revised building classifications and added additionalinventory. Flex inventory has been separately categorized forthis quarter and comparative data will be added in futurereports.


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Sonoma County Office Market Second Quarter 2012

Sonoma County Office Market Overview

Submarket

Building

Class Inventory

Direct

Available

Sublease

Available

Vacancy

Rate

2Q12 Net

Absorption

Average

Asking

Rent

2012 Rent

Growth

Petaluma Class A 1,273,288 271,280 155,831 33.54% -6,940 $1.90 -1.12%

Class B 643,771 178,171 0 27.42% 8,728 $1.64 -3.11%

Total 1,917,059 449,451 155,831 31.49% 1,788 -2.91%

Flex 1,401,592 22,156 0 1.58%

Rohnert Park Class A 214,918 72,923 0 33.93% -9,960 $1.77 4.85%

Class B 1,157,831 219,532 0 18.96% 68,802 $1.30 -7.78%

Total 1,372,749 292,455 0 21.30% 58,842 2.73%

Flex 790,855 259,654 0 32.83%

Santa Rosa Class A 2,464,116 463,144 97,445 22.75% -7,696 $1.67 -3.70%

Class B 2,676,637 371,524 54,105 15.90% 24,899 $1.38 -3.17%

Total 5,140,753 834,668 151,550 19.18% 17,203 -3.22%

Flex 2,054,701 347,947 16.93%

Sonoma Class A 3,952,322 807,347 253,276 26.8% -24,596 $1.76

Class B 4,478,239 767,561 54,105 18.3% 102,429 $1.42

Total 8,430,561 1,574,908 307,381 22.3% 77,833

Flex 4,247,148 629,757 0 14.83%

SANTA ROSA

Submarket InventoryDirect

AvailableSubleaseAvailable

VacancyRate

NetAbsorption

AverageAsking Rent

2012 RentChange

Northwest 633,254 65,413 1,025 10.49% 1,025 $1.39 -14.64%

Southeast 436,227 61,470 0 14.09% 4,515 $1.48 -5.23%

Northeast 631,766 52,071 8,910 9.65% 15,055 $1.41 -6.89%SR BusinessPark 462,729 97,500 5,130 22.18% (19,983) $1.48 6.56%

Fountaingrove 410,811 61,663 9,507 17.32% (12,644) $1.63 -20.68%

Corporate Center 325,385 127,950 7,521 41.63% (6,425) $1.66 0.00%

Downtown 1,104,405 115,539 14,034 11.73% 15,071 $1.79 -0.25%

Stony Point 436,090 109,412 4,177 26.05% 6,098 $1.73 -2.15%

Airport Area 843,866 143,650 17,107 19.05% 9,765 $1.63 0.00%


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Sonoma County Office Market Second Quarter 2012

Sonoma County Historical Vacancy Rate vs. Average Asking Rent

Sonoma County Comparative Vacancy Analysis by Submarket 4q2010 vs 4q2011

$1.50

$1.60

$1.70

$1.80

$1.90

$2.00

$2.10

$2.20

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Vacancy Rate Average Rent

31.7

%

27.1

%

15.4

%

14.2

%

15.0

%

25.5

%

12.3

%

50.3

%

15.4

%

24.6

%

26.7

%

28.2

%

24.4

%

10.3

%

14.1

%

9.7

%

22.2

%

17.3

%

41.6

%

11.7

%

26.0

%

19.1

%

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

Petaluma

RohnertPark/Cotati

NorthwestSR

SoutheastSR

NortheastSR

SR

BusinessPark

Fountaingrove

Corp.

Center

DowntownSR

StonyPoint

Airport

2q11

2q12


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ccnkf northbay office q2 2012

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