SF Office Market Continues to Tighten

SAN FRANCISCO-The second three months of the year saw San Francisco’s overall and class A vacancy rates both fall more than 100 basis points to 13.9% and 12.7%, respectively, according to a second quarter report by Cushman & Wakefield. C&W’s locally based senior director Chris Roeder tells GlobeSt.com that vacancy in the Downtown class A market fell to 11% from 11.7% in the second quarter and should be in single digits by this time next year, setting the stage for higher lease rates and new development.”Everyone expects rent spikes to occur when that happens,” says Roeder. “We’re already over $40 (per sf per year, full service) in the North of Market area and the (CBD) average is very close to $40.”

Companies that inked significant expansions this quarter include Capital Group, Winston Strawn, FTI Consulting, O’Melveny & Myers and Merrill Lynch. Although net absorption is down a little bit from previous quarters, Schroeder says several large lease deals are expected to be signed, which should boost absorption figures. BEA Systems, McKesson Corp., Blue Shield, Bain & Co. and Army Corps of Engineers all are likely to sign deals over 75,000 sf during the third quarter, though some are likely to be renewals, says Roeder.

“In general, you are seeing a lot of big tenants expanding where they are at,” says Roeder. “My personal guess is this time next year we will have seen job growth; it’s not only the big sized companies growing but also the small to mid-sized companies. I am continually receiving calls from brokers representing tenants I’ve never heard of, which means the tech market is coming back to some extent.”