SAN FRANCISCO-Demand in the tech-driven San Francisco office market remained strong through the third quarter of 2013 with overall average of effective rents gaining $1.55, to $46.23, increasing for the fourth consecutive quarter. So says a recent Effective Rent Report for the San Francisco Bay Area from CompStak.
The report, put together by Blake Toline, research analyst, and Noam Shahar, research director for CompStak, says that the upward trend is expected to hold through the end of the year “as the Fed revealed no immediate plans to taper Quantitative Easing and the debt ceiling debacle was delayed until February 2014.”
Effective rents in San Francisco's CBD increased minimally by $0.19, to $47.91. While the growth is positive, it is still below what was seen through the first few quarters of 2012.
Average concession packages are currently hovering around 8% of the deal value, says the CompStak report. “New leases in the CBD represented 69% of all transactions this past quarter, up from 55% last quarter. This trend signals tenant willingness to move to new spaces/markets and further supports a dynamic and healthy market.”
However, some of the notable transactions this quarter were actually renewals, says the firm. For example, Stifel Nicolaus at 1 Montgomery St., and TIAA-CREF at 275 Battery St. both renewed their long term leases for 68,440 square feet and 50,195 square feet, respectively.
Is the Non CBD the New CBD?
Lower vacancy and higher rents in the CBD sent priced out tenants looking for affordable space to Non-CBD submarkets, says the CompStak report. The increased demand raised effective rents by $2.53, to $43.16.
Landlords South of Market and West of Kearny Street have recognized the trend and reduced concession packages by 50 basis points from 6.2% of the deal value in Q3 '12 to 5.7% this past quarter, says the firm.
New leases made up 67% of all transactions, comparable to previous quarters. One reason for the high percentage of new leases (and a trend to look for going forward, according to the firm) is large transactions where tenants are consolidating offices. “Some of these tenants are moving in from the CBD, where supply is thin and appropriate spaces are a hard find.”
Notable large leases in the third quarter are Yahoo's 69,000-square-foot lease at 901 Mission St. and Cisco Meraki's 67,000-square-foot expansion at 500 Terry Francois Blvd.
Asking / Starting Rent Spreads
The spread between asking and taking rents for CBD offices widened for the second consecutive quarter, says the firm. Asking rents saw a much larger increase than that of starting rents. “We expect to see the spread narrowing in the near future as strong demand will push starting rents closer to asking rents.”
A different trend was seen in non CBD submarkets as spreads narrowed, says CompStak. “Landlords adjusted for the favorable demand by reducing concessions rather than increasing asking rents. The spread is likely to continue to narrow compared to the CBD's as demand shows no signs of slowing.”
Continue Reading for Free
Register and gain access to:
- Breaking commercial real estate news and analysis, on-site and via our newsletters and custom alerts
- Educational webcasts, white papers, and ebooks from industry thought leaders
- Critical coverage of the property casualty insurance and financial advisory markets on our other ALM sites, PropertyCasualty360 and ThinkAdvisor
Already have an account? Sign In Now
© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.
Natalie Dolce
Natalie Dolce, editor-in-chief of GlobeSt.com and GlobeSt. Real Estate Forum, is responsible for working with editorial staff, freelancers and senior management to help plan the overarching vision that encompasses GlobeSt.com, including short-term and long-term goals for the website, how content integrates through the company’s other product lines and the overall quality of content. Previously she served as national executive editor and editor of the West Coast region for GlobeSt.com and Real Estate Forum, and was responsible for coverage of news and information pertaining to that vital real estate region. Prior to moving out to the Southern California office, she was Northeast bureau chief, covering New York City for GlobeSt.com. Her background includes a stint at InStyle Magazine, and as managing editor with New York Press, an alternative weekly New York City paper. In her career, she has also covered a variety of beats for M magazine, Arthur Frommer's Budget Travel, FashionLedge.com, and Co-Ed magazine. Dolce has also freelanced for a number of publications, including MSNBC.com and Museums New York magazine.
