Economy
The North Bay, comprising Marin and Sonoma counties, recorded an unemployment rate of 4.3%, a decline of 10 basis points (bps) year-over-year (YOY). Nonfarm jobs increased by 0.7% or 2,100 positions, bringing the total to 317,700. Venture capital funding for start-ups headquartered in the North Bay was $136.0 million (M) (17 deals), an 11.7% increase from the revised $121.7M (12 deals) in the first quarter of 2026. The largest deal of the quarter was Poppy Bank (FinTech) in a later-stage round of $101.1M followed by Lighthouse Pharma (Life Science-Oncology) in an early-stage round of $15.2M.
Supply: Vacancy Levels Climb
The North Bay industrial market closed the second quarter with an overall vacancy rate of 8.4%, representing approximately 2.8 million square feet (msf) of space; vacancy climbed by 80 bps quarter-over-quarter (QOQ) and 130 bps YOY. The overall vacancy rate in Marin County was 3.1%, decreasing 10 bps from the previous quarter and up 10 bps YOY. Central San Rafael, conveniently located to the main highways and bridges, had the most space available in Marin County at 96,641 square feet (sf), offering a wide range of sizes. In Sonoma County, the overall vacancy rate closed the second quarter at 9.8%, increasing by 100 bps from the prior quarter and 160 bps YOY. Petaluma and Santa Rosa recorded the highest amount of available space in the county, totaling just over 1.0 msf and 789,964 sf, respectively.
Pricing: Asking Rates Edge Lower
The overall industrial asking rate in the North Bay closed the second quarter at $1.19 per square foot (psf), on a monthly triple net basis, decreasing by $0.03 psf QOQ and $0.04 psf YOY. In Marin County, the asking rate was $1.66 psf, which was 46.9% higher than the asking rate in Sonoma County, which went down $0.01 psf from the previous quarter to $1.13 psf. For Sonoma County, Petaluma and Rohnert Park commanded the highest asking rates at $1.19 psf and $1.17 psf, respectively, while Sonoma offered the most affordable asking rate at $1.02 psf.
Demand: Net Absorption Falls
Leasing activity in the North Bay during the second quarter totaled 351,463 sf, a 22.7% increase from the prior quarter’s 286,542 sf, reflecting improved tenant demand. Sonoma County captured 90.6% of the activity, while Marin County experienced minimal leasing, mainly due to limited inventory and the lack of new projects in the pipeline. Just over half of the quarter’s leasing deals for the North Bay took place in the Santa Rosa submarket. This activity was led by the quarter’s largest transaction, a new 151,498-sf lease at 3000 Dutton Ave, followed by a new 36,616-sf lease at 975 Corporate Center.
North Bay net absorption totaled negative 263,066 sf in the second quarter, compared to negative 16,347 sf in the previous quarter. The increase in negative absorption was primarily driven by several large blocks of space returning to the market in Sonoma County, including 79,579 sf at 3925 Cypress Dr and 43,439 sf at 2180 S McDowell.
Looking Ahead: Sales Activity Driven By Owner-Users
The North Bay industrial market continues to be supported by a diverse tenant base, with demand primarily coming from local owner-users and small businesses rather than large national logistics users. While activity remains strongest in smaller spaces, several leases over 20,000 square feet were completed this quarter, mostly by companies already operating in the North Bay. Owner-user activity also appears to be increasing as more businesses look to purchase their own facilities. A notable owner-user transaction was the sale of 740 Southpoint Blvd. in Petaluma, which was the largest transaction of the quarter, selling for $7.5 million or $283 psf. A number of larger blocks of space remain available across the market, while demand continues to be concentrated in smaller spaces. Meanwhile, ongoing power constraints and the lack of new industrial construction will limit future supply.
