Reis Updates San Francisco Observers

The Reis Observer team posted 2nd Quarter 2010 San Francisco commercial property market narratives for all property types. Here are brief summaries from each commercial property report.

Apartment Market

The San Francisco apartment market continued to be stable in the second quarter of 2010, but with a vacancy rate that is nearly an historic high for this market. While the market’s performance is mixed in absolute terms, it is excellent in relative terms. According to Western Real Estate Business, “the city of San Francisco is not immune to the forces of gravity, but sometimes it appears that the San Francisco apartment market is.” Apartments have outperformed other asset classes across the country during the Great Recession, and “within the apartment sector some geographic markets have maintained their favored status, and this applies in particular to the San Francisco market.”

Office Space

“Anticipation of a San Francisco office market recovery by bullish landlords and optimistic economists in the second quarter of 2010 ‘appears to be ahead of reality,’ ” according to Studley, Inc. as cited by the San Francisco Business Times. According to Reis data, the San Francisco multi-tenant office market had the fifth worst asking rent decline among the top markets tracked by the firm during the quarter, as asking rents fell and net absorption was negative for the eighth quarter in a row. Still there are some positive signs in some submarkets. “Small subsets of the market are starting to come back, which is the first sign of a recovery,” Grubb & Ellis told the Business Times.

Commercial Retail Property

Retailing in the West Bay portion of the San Francisco Bay area differs radically from the rest of the country. The area experienced dense settlement early in its history, the City of San Francisco features urban street retail, and many of the best shopping center locations were built out long ago. As a result, vacancy is low, which can lead to rent declines, recent formats such as power centers are scarce, and new development generally means redevelopment. Case in point: the San Francisco neighborhood and community shopping center market, which has the lowest vacancy rates among the top markets tracked by Reis but one of the highest rates the firm has recorded locally in a database going back to 1981.

Commercial Industrial Property

The San Francisco industrial market had never fully recovered from the tech bust of 2001 before being hit with a contraction in demand from the Great Recession of 2008. The market, therefore, is in a double deep hole, and the housing bust has eliminated, for the moment, mixed use redevelopment as an alternative for industrial landlords. The general shortage of large development sites in the West Bay, therefore, has not meant high occupancy for existing landlords.

Full versions of these reports including further detail on the 2nd quarter 2010 results are available now.