The city's fourth quarter leasing activity totaled approximately 1.4 million sf, according to the report, with class A space accounting for 73% of the total volume. For the year, overall leasing activity totaled 6.7 million sf, which is off 10.1% from 2004's total of 7.4 million sf. Class A space leasing totaled 4.5 million sf, off 14.3% from the 2004 total of 5.2 million sf.
Studley claims that while employment in Downtown increased at its average historic rate of approximately 1.2%, or 4,000 office jobs, total leasing volume equates to twice as many jobs. Studley EVP Steve Barker, co-branch manager of the San Francisco office, says that indicated that firms were forward planning for the next few years.
"Absent a major change in projected 2006 labor growth, currently calculated at one percent, there simply will not be enough new jobs created to materially impact leasing levels," says Barker. "In 2005, San Francisco tenants seemed to plan for future growth by leasing two seats for every one job created, a ratio that will not be sustainable into 2006."
Further contributing to Studley's predicted slowdown in 2006 is the fact that many large tenants, taking advantage of the tenant-favorable marketplace, leased space in 2004 and 2005, pre-empting their '06 and '07 lease expirations, thereby tempering future sizable tenant demand, according to the report.
Overall asking rents for office averaged $30.44 per sf in the fourth quarter of 2005, unchanged from the third quarter but up from the 2004 year-end average of $25.10. The numbers are similar for class A space only, with asking rents flat compared to the third quarter at $33.36 but up from $27.07 at the end of 2004.
Despite the rise in asking rents, in part fueled by the heated investment market, Barker expects asking rents to stagnate or decrease in 2006. "Year-over-year 'taking' rentals increased by less than 10%, underscoring the ongoing gap between asking and effective rental numbers," he says.
At year-end, there was 10.7 million sf of office space available, reflecting a 14.2% vacancy rate. The class A availability rate was higher at 15.7%, which equates to 7.3 million sf.
Some 40 San Francisco office buildings (10.7 million sf) traded hands during the year for $3.3 billion, or $305 per sf, according to Real Capital Analytics. In 2004, 28 properties comprising, 8.4 million sf sold for a total of $2.5 billion, or $301 per sf.
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