by Whitney Strotz
If it is great, businesses want it. At least that is true for quality office space in southern and central Marin.
Throughout the area, quality office space continues to be in high demand. Three different office suites in Marin County experienced bidding wars — competitive offers for the same space — this past quarter. It has been important for companies to have advisers who understand this dynamic market to provide the information and support needed to react in this marketplace.
Rental rates continue to be at the higher end of historical North Bay averages but are below the average rates in San Francisco and well below the highest Peninsula levels. Rates in premium south-central Marin office projects are about $4.50–low $6 a square foot per month on a full-service basis, compared with the low $6 San Francisco average.
The local market has experienced several years of sustained pressure on commercial real estate, with no new inventory. As a result, rents in many buildings are rising faster than the historical 3 percent annual escalation.
Cushman & Wakefield research tracked the average transaction rate at a prominent central Marin office park over the past few years to demonstrate actual rent increases. Average year-over-year rent growth there was 8.29 percent. Compare this with San Francisco’s 9.91 percent average.
However, this trend has not translated to all buildings in the market. The average class A to class B rent gap has increased by nearly 61 percent over the past year. Class B buildings have seen the average asking rate decline, to $3.66 from $3.72 in central Marin.
As competition for talent and quality-of-life elements continue to be important factors in the site-selection process for many companies, premium office buildings remain in demand. These trends are forcing class B buildings to lower rents to attract tenants. We expect these trends to continue over the medium term.
Business and property owners have been asking whether we in a pricing bubble. Certainly, real estate has up and down cycles. Without knowing when this phase of the cycle will end, most experts agree we are not in the early stages.
However, increased costs to run buildings at current standards may keep pricing higher. Much of the recent construction regulations such as on electrical energy efficiency, heating and cooling systems, and Americans With Disabilities Act accessibility have increased the costs involved in delivering office space. The generational shifts of the workforce have brought additional requirements of our office buildings, like electric car-charging, bike storage, showers and quality outdoor space.
Those shifts and our region’s world-class status as one of the top locations to live and work create pressures that may limit how pricing will move when the economy eventually softens. We just don’t see any immediate signs of that softening.
Whitney Strotz (email@example.com) is an executive managing director and managing principal in Cushman & Wakefield’s Larkspur office.