Economy
The North Bay, comprising Marin and Sonoma counties, recorded an unemployment rate of 4.1%, a decline of 30 basis points (bps) year-over-year (YOY). Non-farm jobs increased by 0.4%, or 1,300 positions, bringing the total to 316,800. Venture capital funding for start-ups headquartered in the North Bay was $45.1 million (M) across 10 deals, a 68.0% decrease from the revised $141.1M in 18 deals in the second quarter of 2026. The largest deal of the quarter was Foundation Industries (Advanced Manufacturing) in a seed round of $25.0M, followed by Ludwig Computing (Machine Landing) in a seed round of $11.6M.
Supply: Vacancy Ticks Up
The North Bay office vacancy rate closed the third quarter of 2026 at 12.7%, a 20-bps increase from the previous quarter and a 110-bps increase YOY. Marin County’s vacancy rate closed the quarter at 14.4%, with 1.4 million square feet (msf) of total available space. Northern Marin, the largest office submarket in Marin County, closed the quarter with a vacancy rate of 14.8%, increasing 10 bps quarter-over-quarter (QOQ). This submarket accounted for 74.6% of Marin County’s total vacancy, with 550,709 sf of vacant space in San Rafael and 482,968 sf in Novato. The overall vacancy rate for Sonoma County ended the quarter at 11.3%, marking a 90-bps increase YOY. Sonoma County accounted for more than 90% of the annual increase in vacant space, led by Class A buildings, where vacancy rose to 14.9% from 12.4% a year earlier. The increase was largely driven by several larger spaces over 10,000 square feet (sf) becoming available in Santa Rosa.
Rates: Asking Rates Hold Steady
The North Bay’s overall average asking rate was $2.95 psf on a monthly full-service basis in the third quarter, essentially unchanged QOQ despite a $0.01 psf increase, and flat YOY. Marin County’s average asking rent rose $0.02 psf QOQ to $3.66 psf, with Greenbrae/Larkspur recording the county’s highest rate at $5.69 psf. In Sonoma County, the average asking rate increased $0.04 YOY to $1.86 psf. Petaluma posted the county’s highest rate at $2.06 psf, supported by limited sublease availability and Class A direct pricing of $2.18 psf.
Demand: Medical Users Drive Leasing Activity
North Bay leasing activity totaled 239,575 sf in the third quarter, up 37.1% YOY and the highest quarterly volume since the third quarter of 2023, when leasing activity reached 258,800 sf. San Rafael led all submarkets with 68,475 sf of leasing activity, highlighted by Marin Community Clinics’ 47,653-sf new lease at 3900 Civic Center Drive, the largest transaction of the quarter. The second-largest transaction of the quarter was Sutter Health’s 25,869-sf new lease at 1383 N. McDowell Blvd. in Petaluma, underscoring sustained demand from medical users across the North Bay.
Marin County recorded 129,355 sf of leasing volume, up 39.4% QOQ, driven primarily by four leases of more than 10,000 sf signed during the quarter. Sonoma County recorded 110,220 sf, a 4.0% increase QOQ and a 26.5% increase YOY. Gross absorption has been rising since late last year as earlier touring activity converted into signed deals. New leases accounted for 94.2% of all deals, while leases under 5,000 sf made up 78.0%.
Net absorption in the North Bay was negative 44,255 sf, a decline from negative 35,042 sf in the second quarter. Marin County recorded negative 9,694 sf of net absorption, down from positive 14,159 sf in the previous quarter, as spaces of more than 10,000 sf were newly added to the market in San Rafael and Novato. Sonoma County’s net absorption was negative 34,561 sf, an improvement from negative 49,204 sf in the previous quarter.
Sales: Investor-Led Momentum Continues
The North Bay for-sale market now has roughly 120 active listings, more than double the 2019 level. The total space available in those listings climbed to a 10-year high of approximately 1.4 million square feet. Sales activity has also strengthened, with year-to-date transaction volume across office and condo properties totaling approximately $190 million, up 73% from the same period in 2025.
Investor activity remained a key driver of the market’s recovery, with year-to-date investment volume more than tripling to $153.8 million. In the third quarter alone, investors accounted for 92% of the $75.1 million in total transaction volume, up from approximately 40% a year earlier. Meanwhile, year-to-date owner-user volume fell to $28.6 million from $54.1 million in the same period of 2025, as the average owner-user transaction dropped below $1 million. The remaining volume was not classified by sale type. The largest sale of the third quarter was 899 & 1050 Northgate Dr. in San Rafael, which sold for $17.7 million, or approximately $157 psf, followed by 45-55 Mitchell Blvd. in San Rafael, which sold for $14.9 million, or approximately $196 psf.
