SAN FRANCISCO—Cushman & Wakefield's Northern California research team recently released Q3 Office Market Statistics for the city of San Francisco. The report reveals that the San Francisco office market is maintaining the momentum of the previous quarter. Year to Date CBD leasing has reached an impressive 4.5 million square feet, while the third quarter aggregate numbers totaled 1.2 million square feet.
According to Robert Sammons, Cushman & Wakefield's Northern California research manager, “It's very interesting to point out that in 2013, there were 31 class A “Big Block” office spaces available (50,000 square feet and more). This year, there are a mere 13 available.
Sammons notes that, “The young technology workforce is in large part responsible for these healthy numbers and the increased demand. They want to live near where they work and the technology companies are listening.”
Sammons also says that there are as many tenants in the market today as there were a year ago. “It's not the same scenario we had during the dotcom boom and bust. Back then, startups were gobbling up space in anticipation of growth and a larger work force. Today the growth and the people are real and they need space in which to put them.”
Sammons tells GlobeSt.com that the market is firing on all cylinders in San Francisco thanks especially to tech and tech-related firms. “We've had a strong third quarter, no doubt about it. And though we're 'bettering' the figures (rents, leasing, vacancy) seen during the last up-cycle (2007/2008), we've yet to hit those record levels (sub 2.0% vacancy rate and $70.00/sf+ citywide class A asking rent) during the turn of the (21st) century. There is definitely still room for price appreciation over the next few quarters at least.”
He adds that “one item to keep a close watch on is the unemployment rate which is now just 4.5% for the metropolitan division—dare we say nearing full employment?! Gains recently have been strong in the office using sectors (+15,100 in the past year).”
Overall, Sammons remains optimistic about the market and stated that with the Q3 results, the year to date leasing activity has already surpassed the total level of 1999, which was the highest in San Francisco commercial real estate history.
Statistical Highlights Include:
Big Block Space Sees Sharp Decline Year-Over-Year
- Contiguous blocks, 50,000 square feet and greater, plummeted to 13 in 3Q14 from 31 just one year ago; those blocks in buildings under construction have dropped to 5 from 10 over the same period of time.
Leasing Activity at Record Levels
- New City Wide leasing activity through 3Q14 has hit 7.6 million-square-feet; this has surpassed the previous full year record in 1999 of 7.4 million-square-feet. Tenant demand remains at the same level as in 2013.
South Financial District on Fire
- This tech-centric submarket saw its Class A vacancy rate slide to 7.9% from 8.9% in just the last quarter alone.
North Financial District Open for Business
- North Financial District actually recorded a vacancy rate increase over the last quarter creating somewhat of a “tale of two CBDs” – will the fact that there is availability in North Financial drive tenants northward in the search for space?
Pricing on the Rise
- Submarket-level (and Citywide) asking rents continue to climb with South Financial rents outpacing all except the small Presidio submarket; the year-over-year Class A average asking rent has climbed 11.4%. Citywide, it's the highest since 2001. Rents are still sharply lower than the last peak in 1999 when competition across various tenants in the market (FIRE to TAMI) bid prices up to a record $75.24 per square foot.
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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.
