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Marin Commercial Real Estate Market on the Rebound

The Marin commercial real estate market is making a comeback as office vacancy rates are gradually declining and leasing rates are increasing.

Orion Partners Ltd. in San Rafael reported that the office vacancy rate dropped to 13 percent in 2007 - 1 percentage point less than in 2006. The rate has

not been so low since the dot-com explosion in the 1990s, said Bill McCubbin, Orion's chief executive officer.

The technology-fueled dot-com era brought vacancy rates to a low of 2.5 percent in 1999 but they spiked in 2000 and 2001, when the industry exploded.

But technology companies once again are a growth industry in Marin. A division of Disney that produces special effects and animation has leased 120,000 square feet at a Hamilton Landing hangar that is under renovation.

While McCubbin, whose firm represents Hamilton Landing, could not comment on the lease, he said the company is an important addition to Marin.

"I think that can be a real catalyst in the sense of bringing new technology-oriented companies to Marin," McCubbin said. "That historically has been the driver of the Marin economy - add that to the other two drivers, which are government and health care."

McCubbin said a leading high-tech firm would likely draw other smaller technology companies. "At Hamilton you've got three or four major technology companies," McCubbin said. "The area has matured."

David Walwyn, research director at Orion, said that while the commercial office space market is extremely tight, there are large buildings with blocks of available space.

Marin Commons at 1600 Los Gamos Drive and the Fireman's Fund building at 777 San Marin Drive in Novato both have been leasing space but are looking for tenants.

"Until we get someone big to take down a lot of space, I think the vacancy rate will be hovering around this point," Walwyn said. "We have seen a steadily stronger market since the recovery from the dot-com crash - space has definitely gotten more expensive since then."

The upward trend in leasing rates was boosted in 2007, when the Blackstone Group, a private equity firm, merged with Equity Office Partners Trust, the

nation's largest publicly traded office building owner.

The $39 billion deal gave Blackstone 580 buildings, including office parks in Sausalito, Mill Valley, Greenbrae, Larkspur and Novato. Properties include the Shoreline Office Center, a two-building, 97,910-square-foot complex at Shoreline Highway and Highway 101 in Mill Valley; offices at Larkspur Landing Circle; Wood Island in Larkspur Landing, and Drake's Landing in Greenbrae. At the time, prime parties offered asking rents ranging from $2.50 per square foot in Novato to $4 per square foot in Southern Marin.

Walwyn said Blackstone is signing deals for as much as $5 a square foot in its Larkspur properties.

Greg Moss, managing partner at NAI BT Commercial in San Rafael, said the credit crunch could keep asking rates stable because mortgage companies have closed their doors and jobs have been cut.

"Consequently, we anticipate sublease space to begin hitting the market in the first quarter." Moss said.

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