The market is transitioning toward equilibrium — positive absorption and 1.0% annual rent growth despite elevated vacancy. Demand is concentrating on efficient, well-located last-mile and specialized logistics space, while older, functionally obsolete buildings see longer marketing times. A constrained pipeline (~1.3M SF under construction, no Q2 deliveries) is helping preserve pricing power.

Vacancy is up 60 bps year-over-year and asking rents have fallen 13% from a year ago, but leasing activity remains robust at 4.6M SF year-to-date. The bright spot: investment sales volume is up 84.3% year-over-year to 2.8M SF, signaling renewed buyer confidence even as occupiers stay selective. A thin construction pipeline (512K SF) should limit new supply pressure ahead.

Leasing activity jumped 22.7% quarter-over-quarter to 351K SF, but several large blocks returning to the market in Sonoma County offset the gain. Demand remains concentrated among local owner-users and small businesses rather than major logistics operators — the quarter's largest deal was an owner-user sale in Petaluma at $283/SF. Power constraints and no new construction should limit future supply.

The tightest of the four submarkets by a wide margin — under half the vacancy of the East Bay or North Bay, with rents up and absorption solidly positive. This is where the bulk of our own South Bay track record sits, including 1800 Dobbin Dr, 750 Story Rd, and 769 N Mathilda Ave.