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). Nonfarm 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 deals of the quarter were to two Mill Valley-based companies: Foundational Industries (advanced manufacturing) in a seed round of $25.0M, and Ludwig Computing (computer hardware) in a seed round of $11.6M.
Supply: Vacancy Levels Climb
The North Bay industrial market closed the third quarter with an overall vacancy rate of 9.0%, representing approximately 2.8 million square feet (msf) of space. Vacancy climbed 50 basis points (bps) quarter-over-quarter (QOQ) and 130 bps year-over-year (YOY). Marin County’s vacancy rate was 3.1%, up 10 bps QOQ and flat YOY. Central San Rafael, conveniently located near the main highways and bridges, had the most available space in the county at 102,622 square feet (sf), spanning a wide range of sizes. In Sonoma County, vacancy closed the quarter at 10.5%, up 70 bps QOQ and 160 bps YOY. Petaluma and Santa Rosa recorded the most available space in the county, totaling just over 1.0 msf and 871,687 sf, respectively.
Pricing: Asking Rates Edge Lower
The overall industrial asking rate in the North Bay closed the third quarter at $1.17 per square foot (psf) on a monthly triple-net basis, down $0.02 psf QOQ and $0.06 psf YOY. Marin County’s asking rate of $1.65 psf was 46.0% higher than Sonoma County’s, where the rate fell $0.02 psf QOQ to $1.13 psf. Within Sonoma County, Petaluma commanded the highest asking rate at $1.19 psf, followed by Rohnert Park at $1.11 psf, while the city of Sonoma offered the most affordable rate at $1.00 psf.
Demand: Leasing Activity Falls
Leasing activity in the North Bay totaled 331,141 sf in the third quarter, a 21.8% decrease from the prior quarter’s 423,472 sf. The market has recorded several larger new lease deals over the past 12 months, along with a large number of renewals, but activity slowed in the third quarter. Sonoma County captured 94.9% of the activity, or 314,198 sf, while Marin County saw minimal leasing due to limited inventory and the lack of new projects in the pipeline. Just over half of the North Bay’s leasing deals took place in the Rohnert Park and Santa Rosa submarkets. The quarter’s largest transaction was a new 86,807-sf lease from Corning & Company Distillers at 3000 Dutton Ave., followed by a new 70,000-sf lease from the Northern California Volleyball Association (NCVA) at 1200 Valley House Dr.
North Bay net absorption totaled negative 174,106 sf in the third quarter, compared with negative 70,862 sf a year earlier. The deeper negative absorption was primarily driven by several large blocks of space returning to the market in Sonoma County.
Looking Ahead
Vacancy in the North Bay industrial market is likely to remain elevated in the near term as large blocks of space in Sonoma County return to the market, with recent closures in the wine industry potentially adding to that supply. Even so, interest from tenants who have been on the sidelines suggests leasing of vacant space should gain traction.
Demand continues to come from owner-users and small businesses rather than national logistics players, with a growing appetite among users to buy. Though owner-user activity has returned, it remains below historic norms. The quarter’s largest building to transact was 2220 Pineview Way in Petaluma, where an owner-user purchased the building for $4.8 million, or $184 per square foot (psf). Higher interest rates have raised costs for buyers and are expected to temper investor returns, which could slow the pace of sales.
With no new development in the pipeline, supply pressure will be limited while move-in-ready buildings draw strong interest. Absorbing the larger vacant blocks will take time, with owner-user sales and small-tenant leasing remaining the primary drivers of activity.
