SAN MATEO, CA—Developers on the Peninsula that started projects in 2013 or 2014 are reaping the rewards of what seemed to be a risky move at the time. Wilson Meany is about a year into construction on Station 4, the first of five buildings at Bay Meadows Station. SurveyMonkey, currently located in Palo Alto, CA, committed to 210,000 square feet at the property, more than quadrupling its space. The developer is also breaking ground on a second building in the complex.
The entire Bay Area region–encompassing San Francisco, the East Bay, the North Bay, the Peninsula and Silicon Valley–has more than 15 million square feet under construction. The Peninsula accounts for a fraction of this total–only 2 million square feet–but all of the submarket's 13 buildings are delivering by 2017. Other than Salesforce Tower, most of the big projects with available space in the Bay Area will not deliver until after 2017.
Indeed, the Peninsula has the advantage of a development pipeline that offers options in the short term, even with rent increases in some areas. Class-A rent has increased by 12.5% from a year ago to $4.10, with notable year-on-year spikes of 18.8% to $4.71 in San Mateo/Foster City, CA and 13.9% to $4.41 in San Carlos/Belmont, CA.
Steven Lico, corporate managing director in the Savills Studley Palo Alto office tells GlobeSt.com: "While Peninsula office rents are generally increasing, tenants willing to consider Peninsula locations outside of the downtown areas of Redwood City, San Mateo and Burlingame will find good quality options where they can enter into leases with shorter terms (3 to 5 years) providing the flexibility most young technology companies require, and at rent levels that are favorable compared to markets to the north and south."
The Peninsula offers expanding tech firms room for future growth at rents that are generally $10.00 to $15.00 less than the current renewal rate in most of San Francisco, and an even steeper discount from space in the prime submarkets of Silicon Valley. Concessions such as rent abatements also remain elevated in comparison to the Valley and San Francisco.
"The Peninsula offers more tenant-friendly pricing than markets to the north and south. The steady flow of companies relocating from the valley and San Francisco shows no sign of slowing. As tech firms move into the region, they are bringing aggressive hiring and space demands with them, supporting robust leasing and moderate rental rate growth," says Nate Currie, managing director, Savills Studley.
Savills Studley analyzed the city versus suburbs in a study earlier this year.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
