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). Non-farm 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) in 17 deals, an 11.7% increase from the revised $121.7M in 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 Ticks Up
The North Bay office vacancy rate closed the second quarter of 2026 at 12.9%, reflecting a 20-bps increase from the previous quarter and an increase of 90 bps YOY. This rise was largely driven by several larger spaces over 10,000 square feet (sf) becoming available in Sonoma County.
Marin County’s vacancy rate closed the quarter at 14.9%, 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 15.7%, decreasing 20 bps YOY. This submarket accounted for 76.3% of Marin County’s total vacancy, with 630,721 msf in San Rafael and 464,606 sf in Novato.
Meanwhile, Sonoma County ended the quarter with a vacancy rate of 11.1%, marking a 170-bps increase YOY. The major contributors included nearly 20,000 sf at 1800 McDowell in Petaluma and approximately 10,000 sf at 475 Aviation Blvd. in Santa Rosa.
Demand: Small Tenants Lead Activity
North Bay leasing activity remained steady in the second quarter, totaling 177,951 sf. Petaluma led market activity, accounting for 68,475 sf, driven by QT Imaging’s 21,942 sf new lease and Computerized Vehicle Registration’s 16,233 sf renewal. By county, leasing quarter-over-quarter (QOQ) was relatively flat with Marin at 80,090 sf and Sonoma at 97,861 sf. New leases accounted for 85.1% of the deals and leases under 5,000 sf made up 76.6% the deals.
North Bay office gross absorption has declined when comparing the post-pandemic and pre-pandemic periods, averaging 202,000 sf of quarterly gross absorption from 2022 to 2026, down 43% from the quarterly average of 354,000 sf, recorded between 2015 and 2019. The decline underscores a shift in space utilization, as tenants have adopted hybrid work models and reduced office footprints, resulting in fewer large-block transactions and activity driven more by smaller deals.
Net absorption for the North Bay was negative 35,797 sf, improving from negative 103,632 sf in the first quarter. Marin County recorded positive 15,653 sf of net absorption, rebounding from negative 32,713 sf in the previous quarter, primarily driven by large move-ins such as Divine Electric’s 12,347 sf occupancy in San Rafael. Sonoma County recorded negative 51,450 sf of net absorption, an improvement from negative 70,919 sf in the previous quarter. The largest move in was QT Imaging’s 21,942 sf in Petaluma.
Rates: Asking Rates Recorded Minimal Change
The overall average asking rate for the North Bay in the second quarter was $2.95 psf on a monthly full-service basis, reflecting a slight $0.10 psf decrease both QOQ and YOY. Marin County’s average asking rent was $3.61 psf, increasing $0.01 psf QOQ. Greenbrae/Larkspur has the highest rate in Marin County at $5.71 psf. The average asking rate in Sonoma County increased by $0.03 QOQ to $1.88 psf. Petaluma recorded the highest in Sonoma County at $2.09 psf thanks to limited sublease availability and direct pricing of Class A space at $2.17 psf.
Sales: Sales Activity On The Rise
The North Bay for-sale market has continued to evolve with the most recent trend being a rebound in transactions. Volume peaked at nearly $200M in 2016, then declined steadily through the early 2020s. More recently, deal volume has begun to recover alongside a significant pool of listings. Although the number of office properties for sale has pulled back from its recent high, decreasing to 87 in Q2 2026 from 103 in Q2 2025, listings remain well above the 2019 level.
Transaction volume among office and condo properties has grown meaningfully in the first half of 2026. Owner-user activity increased from around $9.6M in the first half of 2025 to $22.9M in the first half of 2026, more than doubling in dollar volume. Investment volume grew at an even sharper pace, rising from almost $20.0M to $84.9M, more than quadrupling YOY. Average deal size for owner-user transactions has trended smaller, pointing to a broader base of smaller buyers entering the market, while investment activity has been driven by fewer, but larger transactions.
