Solano & Napa Office Vacancy Rate Ticks Up in 2Q

While some office markets are beginning to show signs of life, office demand in Solano and Napa Counties has continued to falter. The vacancy rate in the two Northern California counties increased from 17.5% to 17.8% in the second quarter, illustrating the sluggish market activity, according to a market report from Colliers. With class-A vacancy seeing a more dramatic increase, from 19.2% to 20%, the report forecasts rising vacancy through the end of the year.

The vacancy rate is just one sign of the slow market activity. Absorption was in the red 12,312 square feet, while direct asking rents remained flat at $1.97 per month, full-service gross. One positive note: the sublease supply decreased for the first time since the start of the pandemic by 18.2%. The total sublease supply in the market is 59.829 square feet. In early 2020 before the start of the pandemic, the sublease supply was 16,771 square feet.

In Fairfield, the office vacancy rate increased from 27.6% to 28.9% as a result of limited leasing activity, according to the Colliers report. The largest investment transaction was BAU Courage LLC’s purchase of a 42,670-square-foot office/flex building located at 2333 Courage Drive for $4.7 million. The property was 60% leased at the time of the sale.

In Napa, the vacancy rate actually inched down, from 14.4% to 14%. Two office lease transactions were behind the positive trend. Amizetta Winery leased 3,204 square feet at 870 Napa Valley Corporate Way and ArtistWorks leased 3,203 square feet at 167 Camino Dorado.

In general, Northern California’s office market has had a bumpy road out of the pandemic. In the East Bay, class-A office demand is expected to shrink due to lower rents in CBDs, like nearby Downtown San Francisco, according to a report from Marcus & Millichap. The report forecasts office vacancy will increase only 80 basis points this year, thanks to demand for lower-quality office space; however, for the same reason, the report expects office rents to fall 3.7%, driven by decreased demand for higher priced space.

In San Francisco, office owners are gaining optimism thanks to increased leasing activity. In the second quarter, office leasing activity totaled 1.1 million square feet, more than twice the previous quarter’s leasing activity, according to a market report from Savills. More than half—59%—of the leasing activity was for new locations, and 61.5% of the leases were signed by tech companies.