SAN FRANCISCO-The tech sector continues to drive the San Francisco office market, with the rapid expansion of local companies as well as an influx of Valley firms and others from outside the region contributing to the acceleration. Following a sluggish first half of 2013, tech companies resumed their aggressive pursuit of space in the third quarter, according to the San Francisco Studley Report.
Overall leasing volume equaled three million square feet, significantly higher than the historical quarterly average of 1.9 million square feet, says the report. “While some larger tech companies are considering options in multiple areas of San Francisco, including Mission Bay, small to medium-sized companies continue to target SoMa's industrial-style, creative space, driving rents in class B product above that of class A space in some cases.”
According to the report, this disruption of long-standing market dynamics can also be seen in the dichotomy between the tech sector and the rest of the market. Tech tenants can't find space quickly enough, making pre-emptive strikes and warehousing blocks of space in anticipation of future growth.
In contrast, says the firm, legal, financial and other traditional space users are taking a more analytic and cautious approach, having largely too much space already. “As these firms address their occupancy needs, it is likely space will be returned to the market increasing availability in some key sectors.”
According to Steve Barker, Studley EVP and branch manager of the firm's San Francisco office, “It is critical that tenants of all sectors and sizes understand the pace of the market and rationally assess alternatives in both the short- and long-term. For example, large tenants with leases expiring between 2015 and 2017 have the time to assess whether or not the market's growth will continue unabated.”
One potential opportunity for these users, he continues, is the next wave of top-tier product which is set to deliver during the same timeframe. “The first tenants to make sizeable commitments in the new projects will likely capture the greatest space efficiencies and generous concessions.”
Other pockets of opportunity, he adds, include alternative submarkets such as Waterfront/North Beach, particularly for smaller and mid-sized companies, moving all or some operations to the East Bay, and leveraging current tenancy into a long-term renewal, “thereby avoiding significant capital outlays.”
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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.
