SAN FRANCISCO—A surge in large leases of 100,000 square feet or more during the second half of 2017 boosted positive net absorption and reduced available space options. Expanding tech tenants were responsible for 14 of 20 large lease transactions in 2017. This surpassed the previous record of 17 large leases for 3.6 million square feet in 2014, according to a fourth-quarter office report by CBRE.
“Combined with the Exchange at Mission Bay, where Dropbox leased the entire space and the Warriors space which was leased by UBER, the Salesforce/Transbay project makes up the third component of the leasing activity,” Meade Boutwell, senior vice president, CBRE tells GlobeSt.com.
Pre-leasing of the 6.6 million square feet under construction including the Dropbox and UBER space increased from 41% in January to 71% by December of 2017. Under construction large block availabilities totaling 3.9 million square feet were most impacted and dropped from seven at the start of 2017 to two by year-end.
Positive net absorption of 761,885 square feet in 2017 was achieved during the second half of the year, reducing vacancy by 90 basis points from 6.7% in second quarter 2017 to 5.8% in fourth quarter 2017.
An example of some recent leases in the city included Snap Inc. leasing 33,000 square feet at 875 Howard St., Niantic Inc. taking 17,000 square feet at the Ferry Building, Airbnb leasing 82,000 square feet at 650 7th St., Covington & Burling Law Firm leasing 79,000 square feet at Salesforce Tower. In addition, Symantec signed for 40,000 square feet at 100 California St., Periscope Data inked 43,000 square feet at 1125 Mission St., Stride Health took 13,000 square feet at 501 Second St., Calegari & Morris leased 15,000 square feet at 650 California St., Fetch Media took 10,000 square feet at 141-153 Kearny St., Gusto signed for 50,000 square feet at Pier 70, Cosmos Labs inked 16,000 square feet at 3030 17th St., Okta took 207,000 square feet at 100 First St. and Canopy Growth leased 11,000 square feet at 170 Columbus Ave., according to Jeff Weil, executive vice president of Colliers International.
Looking ahead, CBRE says overall market conditions will likely strengthen in favor of landlords based on elevated demand from large tech tenants. Limited relief is expected from 2018 construction deliveries that are 84% preleased. These conditions are likely to put upward pressure on asking rents even as additional options open up for tenants searching for space under 30,000 square feet, a segment of the market in better supply-demand balance.
Boutwell agrees that the smaller-sized spaces are coming on strong.
“We're seeing an uptick in demand in all sized ranges, and the 2,000- to 50,000-square-foot is definitely picking up,” he tells GlobeSt.com. “I would look at that as a positive.”
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
