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SAN FRANCISCO—Fourth quarter investment sales in San Francisco's office market are an important contributor to market dynamics and reflection of future confidence. That is according to CBRE director of research and analysis, ColinYasukochi.
In a recent report, he notes that office building sales totaled $5.9 billion in 2014, nearly triple that of last year and just below the current cycle-high of $6 billion in 2012. Class A pricing did hit a new record average of $641 per square feet for all of 2014.
“This is a 93% increase since year-end 2009, following the class A rent trend that increased by 99% over the same time period,” he says. “Contrasted with the period from 2003 to 2007, in which class A pricing rose twice as much as class A rents, the current cycle seems to present a more balanced correlation between the investment sales and leasing markets.”
In addition, he says, the continuing dominance of technology has raised concerns that more non-tech tenants will be forced to shrink or leave the market entirely as conditions become increasingly tight. “As available space continues to be absorbed by technology tenants, one trend to monitor in 2015 is the potential for the market to become weighted with premium view spaces that a diminishing number of tenants can afford. Indeed, this trend has gained traction, with a few notable companies recently downsizing and/or moving to less costly building spaces and markets during 2014.”
But whether this is a welcome relief to space-starved technology tenants whose growth is far outpacing these space reductions, or reflective of overheating market conditions, remains to be seen, he adds.
As for construction completions, he explains that in Q4, one new project was delivered at 535 Mission St., bringing the total construction deliveries to 1.4 million square feet for 2014. An additional 4.4 million square feet is under construction and 1.7 million square feet is pending
Construction, he says.
Looking ahead to 2015, more than 2.5 million square feet of construction is expected to deliver, “but at 92% pre-leased, it will not be easing the availability constraint in a significant way,” he says.
Check out the office construction chart below for more.
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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.
