Report: Signs of Life in Bay Area Office Market

SAN FRANCISCO-Amid the devastation that has struck San Francisco Bay Area office markets over the past 30 months, there are signs of life, says Dan Mihalovich, a 21-year leasing veteran and principal of Mihalovich Partners.

In the company’s mid-3rd Quarter 2003 analysis of the market, Mihalovich reports net positive growth to date of 492,000 sf in the city; 39,000 sf in San Mateo County; and 289,000 sf in Santa Clara County. “After 10 consecutive quarters of repeated onslaughts of new space being dumped on the market by failing tenants and struggling landlords, many tenants have finally risen to the occasion to do the economic thing—respond to rapidly declining rental rates and enormous incentives from the landlord community.”

This does not mean a recovery is in full swing, says Mihalivich, as “the weight of total vacancies remains painfully obvious.” Asking rental rates in every Bay county, for both direct and sublease space, are lower than in Q2, and asking rates in the city, even during a period of impressive absorption, are down 6% since Q2, according to the report. “Landlords will find the levels of activity refreshing, but hardly satisfying,” says Mihalivich.