Q2 2012 San Francisco, California Industrial Submarket Trends

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Q2 2012 San Francisco, California Industrial Submarket Trends

Most of the West Bay’s warehouse/distribution space is located in San Francisco County, the area’s historic industrial heart, and northern San Mateo County, near San Francisco International Airport. According to Cassidy Turley, San Francisco County’s industrial space is “dominated by older product—much of which is functionally obsolescent compared to the modern institutional-grade product preferred by most space users. Demand here has historically been driven by service-related industries that must be located within the City.”

Flex/R&D space has been centered in San Mateo County, with the northern part of the county, the historic home of the Bay Area’s biotech cluster and the southern part of the county, near Silicon Valley, oriented toward information technology. With the ongoing planned redevelopment of Mission Bay, San Francisco County has attracted some bio-tech R&D facilities.

San Francisco County

  • Reis reports a vacancy rate of 8.9% and an average asking rent of $8.45 psf for 10.3 million square feet of warehouse/distribution inventory in San Francisco County.
  • The vacancy rate fell 10 basis points during the quarter but is up 10 from a year earlier. The average asking rent was up 0.2% during the quarter, with the average effective rent up 0.5% to $7.88 psf. The year-over-year gains are 5.4% asking and 4.9% effective.
  • Cassidy Turley reports a vacancy rate of 4.4% for 20.3 million square feet of industrial space in San Francisco County, down 110 basis points from the prior quarter. The average asking rent as reported by this source is $9.36 psf triple net.
  • “KWW Kitchen Cabinets & Bath relocated to over 32,000 square feet at 211 Industrial Street” in the Bayshore Corridor, according to this source. Youngs Market Company relocated to 26,000 square feet in the Mission Bay/Dogpatch section, and SRG Designs Inc. moved to 25,000 square feet in the same area.
  • For a relatively small 1.7-million-square-foot San Francisco County Flex/R&D market, Reis reports a vacancy rate of 11.8% and an average asking rent of $15.73 psf.
  • Vacancy plunged 190 basis points during the quarter and is 30 basis points lower than a year earlier. The average asking rent rose 0.5% during the second quarter, while the average effective rent increased 1.2% to $13.98 psf. The asking average is up 0.1% year-over-year, but the effective average is down 0.5%.
  • For 1.7 million square feet of life sciences space, according to Cassidy Turley, “the San Francisco marketplace recorded 98,000 square feet of growth during the second quarter, erasing modest losses incurred during the first quarter and bringing year-to-date absorption to 73,000 square feet.”
  • “Vacancy now stands at just 2.1%, down from 8.0% three months ago and 14.2% one year ago,” according to this source. The average asking rent of $35.76 psf “has remained stable for the past nine months” but is down from earlier readings.

Northern San Mateo County

  • Reis reports 15.6 million square feet of warehouse/distribution inventory in Northern San Mateo County, about half the total multi-tenant space of this type on the West Bay. The vacancy rate is 10.8% here according to the firm, unchanged from the prior quarter but down 140 basis points from a year earlier.
  • Rents have been uneven here. In the second quarter the average asking rent was unchanged at $8.40 psf, but the average effective rent rose 0.5% to $7.79 psf. While the asking average is down 1.3% from a year earlier, the effective average is up 0.5%.
  • For 27 million square feet in North County, Cassidy Turley reports an overall vacancy rate of 11.0% and an average asking rent of $8.52 psf. Weak conditions are concentrated in the South San Francisco/San Bruno submarket, the largest in the county at 17.8 million square feet, with 192,000 square feet of negative net absorption year-to-date.
  • Williams Sonoma renewed for 194,100 square feet on Valley Road in Brisbane according to this source. NNR Global Logistics expanded to 45,400 square feet in South San Francisco.
  • US. WorldMeds leased 39,600 square feet of warehouse/distribution space in South San Francisco, according to Cushman & Wakefield.
  • For 3.5 million square feet of Flex/R&D space in northern San Mateo County, Reis reports a vacancy rate of 9.4% and an average asking rent of $12.50 psf.
  • The vacancy rate was unchanged during the second quarter but is down 170 basis points year-over-year. Rents are falling, with the average asking rent down 0.3% during the quarter and the average effective rent down 0.4% to $11.45 psf. The year-over-year decrease is 1.9% by both measures.
  • Cassidy Turley reports a vacancy rate of 12.1% and an average asking rent of $33.84 psf for 8.7 million square feet of R&D space in its South San Francisco/Burlingame submarket, the foremost bio-tech center in the Bay Area. Net absorption was minus 53,600 square feet here in the second quarter but is positive year-to-date.

Southern San Mateo County

  • For a relatively small 5.9-million-square-foot warehouse/distribution market in Southern San Mateo, Reis reports a vacancy rate of 10.6% and an average asking rent of $8.36 psf.
  • The vacancy rate fell 50 basis points in the second quarter, and is down 120 from a year earlier. The average asking rent increased 0.6% during the quarter, with the average effective rent up 0.9% to $7.63 psf. The year-over-year gains are 2.5% and 2.7%, respectively.
  • Cassidy Turley reports an industrial vacancy rate of 4.5% for 6.5 million square feet in Belmont/San Carlos, the largest south San Mateo industrial submarket. The average asking rent is given as $10.08 psf.
  • The 4.4 million square feet of Flex/R&D space in southern San Mateo is nearly half the West Bay total according to Reis. Its vacancy rate is 10.1% and its average asking rent is $14.13 psf.
  • The vacancy rate fell 70 basis points during the second quarter and is down 210 from a year earlier. Rents were up 0.5% asking and 1.1% effective (to $13.17 psf) during the quarter. The year-over-year gains are strong at 5.9% and 7.7%, respectively.
  • “The strongest performing submarket of the second quarter was Menlo Park,” according to Cassidy Turley’s report on San Mateo R&D. “Vacancy here fell from 12.0% to 9.2% over the past three months thanks to nearly 135,000 square feet of occupancy growth.” The average asking rent in this submarket is $20.76 psf.
  • “Though the overall economic recovery remains painfully slow and on fragile footing, the tech sector has been virtually bulletproof,” according to this source. “Because of this, we expect this quarter’s positive performance to be improved upon over the final half of the year.”
  • “After raking in hundreds of millions of dollars from movies like ‘Madagascar 3’ and ‘How to Train Your Dragon,’ DreamWorks Animation is increasing the size of the studio that made them,” according to the Business Times. “DreamWorks CEO Jeffrey Katzenberg is planning to attend a ribbon cutting ceremony to celebrate the addition of 200,000 square feet of new space” to its Redwood City facility.