Some 360,631 sf of net absorption in the fourth quarter pushed the year-end total to a positive 138,149 sf, according to the report, leading Colliers to proclaim that "the San Francisco office market has finally emerged out from under the storm and looks poised for a promising and steady recovery."
However, the positive absorption occurred despite no improvement in job growth, as San Francisco County's unemployment rate is currently 6.1%, up from last year's 5.9% mark. "Unfortunately, economists are predicting that the unemployment picture will remain subdued for the next couple of years despite the GDP's 8.2% annual rate in the third quarter," states the report. "Greater production has not translated into many more jobs as businesses continue to maximize employee and equipment productivity."
The surge in absorption during the second half of the year pushed down year-end vacancy, of course. The office vacancy rate declined from 17.3% to 16.9% during the fourth quarter. Nearly three-quarters of the leasing activity occurred in the Financial District, which saw 207,238 sf of positive net absorption as tenants took advantage of relatively inexpensive rents.
Rents didn't drop much in 2003, giving hope that they may actually rise in 2004. Financial District class A rents decreased 2.7% from the first quarter and now stands at $29.31. During the same time frame, class A citywide rents decreased 2.2% to $29.13, class B increased 3.7% to $21.68 and class C rents decreased 3.5% to $16.65. "With estimated absorption of one million sf for 2004 and possibly up to two million sf for 2005, the vacancy rate could dip below 13% citywide in the next two years," says Colliers director of market research Brad Van Blois.
Colliers forecasts vacancy dropping and rents stabilizing with clear indication that the bottom has been struck and the city should experience a continued rebound into 2004. "The recovery will be slow however, as economists are predicting modest job growth of 1% to 2% for 2004," states the report. "Job growth seems to lag the overall economy by 12 to 18 months so a real pickup could occur in 2005."
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