Q2 2012 San Francisco, California Office Submarket Trends

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Q2 2012 San Francisco, California Office Submarket Trends

The city of San Francisco accounts for two-thirds of the office space in the three-county metropolitan division on the west side of the San Francisco Bay; the Financial District alone accounts for nearly half of the metro’s total inventory of office space. The southern end of San Mateo County accounts for nearly half the space outside the city; it is as much an extension of Silicon Valley in Santa Clara County to the south as it is an extension of San Francisco to the north.

San Francisco

  • The 30-million-square-foot North Financial District submarket has a second quarter 2012 vacancy rate of 11.2%, and an average asking rent of $47.05 psf, the highest among 13 submarkets according to Reis.
  • This submarket had 255,000 square feet of net absorption in the second quarter, bringing the year-to-date total to 348,000 square feet. The vacancy rate is down 90 basis points for the second quarter and 200 year-over-year. The average asking rent increased 1.4% during the quarter, and the average effective rent is up 1.6% to $39.34 psf. The year-over-year gains are 4.9% asking and 6.2% effective.
  • Cassidy Turley reports an 11.2% vacancy rate for 27 million square feet in its North Financial submarket. The average asking rent is given at $44.25 psf.
  • “Law firms and financial services firms continue to shed office space,” according to Cushman & Wakefield, leading to rising sublet availabilities in the Central Business District (CBD). “Despite the hiccup in the CBD, landlords are using the City’s overall positive trends to push asking rents up across the board, including in the lower floors of some of the ‘commodity space’ buildings, as those floors are getting more tour activity than many of the top trophy ‘view’ floors.” Asking rents are being pushed by landlords seeking to sell at high prices, but concessions are still high according to this source.
  • In the 14.1-million-square-foot South Financial District submarket, Reis reports a vacancy rate of 10.6%, and an average asking rent of $40.01 psf, once again the third highest among the submarkets behind South San Mateo down by the Silicon Valley.
  • The vacancy rate increased 60 basis points during the quarter on 85,000 square feet of negative net absorption, but remains down 70 from a year earlier. The average asking rent rose 0.4% during the quarter with the average effective rent up 0.3% to $32.86 psf. The year-over-year gains are 5.0% and 6.3%, respectively.
  • The 72,000-square-foot 188 Spear Street completed construction in May. The 286,000-square-foot Foundry Square III is expected to complete construction late in 2013.
  • “Foundry Square III has begun construction with a 2014 delivery date, which will be followed by 222 Second Street once Foundry Square III is leased,” according to Cushman & Wakefield.
  • Cassidy Turley reports a 7.5% vacancy rate for 23.5 million square feet in the South Financial submarket, with an average asking rent of $47.38 psf.
  • This source reports four relocation/expansion leases in the submarket totaling 362,170 square feet—by Autodesk, Yelp, Amazon.com, and Velti USA Inc.
  • The 2-million-square-foot Van Ness/Civic Center submarket has a second quarter vacancy rate of 8.7% and an average asking rent of $34.58 psf, Reis reports.
  • The vacancy rate fell 470 basis points in the second quarter on 92,000 square feet of net absorption. The average asking rent increased 0.8% during the year, with the average effective rent up 1.0% to $29.45 psf. The year-over-year gains were 4.5% and 5.2%, respectively.
  • The 277,000-square-foot Public Utilities Commission headquarters, a government-occupied building, completed construction in June.
  • Cushman & Wakefield reports leases of 85,268 square feet by Twitter and 78,792 square feet by Yammer in the Van Ness Corridor. This source reports a vacancy rate of 18.4% and an asking rent of $29.44 psf for the area.
  • In the 4.4-million-square-foot South of Market (SoMa) submarket, Reis reports a vacancy rate of 20.9% an average asking rent of $36.42 psf. The vast majority of the inventory in this submarket is Class B/C according to Reis.
  • The vacancy rate increased 30 basis points during the quarter and is up 20 from a year earlier. The second quarter rent increases were 1.1% for the asking average and 1.0% for the effective average to $29.01 psf. The year-over-year gains were 5.8% and 6.9%, respectively.
  • Reis places the 405,000-square-foot office building under construction at 680 Folsom Avenue in the adjacent Yerba Buena submarket. A December 2013 completion date has been reported.
  • Airbnb leased 170,000 square feet of Class B space in the Showplace Square area, according to Cassidy Turley.
  • Cushman & Wakefield reports a vacancy rate of 12.8% and an asking rent of $49.74 psf for San Francisco South of Market. This submarket accounted for 311,517 square feet of net absorption for the quarter according to this source, out of a citywide total of 423,745 square feet.
  • “With Dolby’s rumored acquisition of the 385,000-square-foot State Comp Building in Mid-Market, conditions even in the City’s traditionally weaker periphery markets are becoming increasingly tight,” according to Cassidy Turley. Studley, Inc. reports the deal for 1275 Market Street went through, taking one of the biggest remaining blocks of space off the market but opening up “a much needed” 300,000-square-foot block of space in SoMa.

San Mateo County

  • The 4.9-million-square-foot North San Mateo submarket has a second quarter vacancy rate of 23.7%, second highest among the submarkets, and an average asking rent of $33.29 psf, according to Reis.
  • The vacancy rate was unchanged in the second quarter, and is up 80 basis points from a year earlier. The average asking rent rose 0.9% and the average effective rent increased 0.7% to $25.20 psf. The year-over-year gains are 3.7% and 4.1%, respectively.
  • Cassidy Turley reports a vacancy rate of 21.6% and an average asking rent of $35.04 psf for North San Mateo.
  • “The South San Francisco trade area posted over 93,000 square feet of growth this quarter, bringing year-to-date totals to over 114,000 square feet” but net absorption was negative in other north county towns according to this source.
  • “Two significant leases were signed at Centennial Towers, a 325,408-square-foot Class A building which had remained vacant since it was built in 2008,” according to Cushman & Wakefield. “SuccessFactors leased the top three floors for a total of 87,067 square feet, and ICIX followed with 30,000 square feet on the third floor.”
  • In the 5.3-million-square-foot Central San Mateo submarket, Reis reports the vacancy rate is 15.6%, and the average asking rent is $31.14 psf, the second lowest among the submarkets.
  • This submarket had a 30 basis-point vacancy rate decrease in second quarter, and the rate is down 100 from a year earlier. Both the average asking rent and the average effective rent increased 0.7% during the quarter, the latter to $24.57 psf. The year-over-year increases are high at 8.0% and 9.0%, respectively.
  • Cassidy Turley reports a 10.3% vacancy rate for 15.8 million square feet in Central San Mateo County. The average asking rent is $35.76 psf.
  • This source reports relocation/expansion leases of 24,300 square feet by Emeter Corporation in Foster City and 19,800 square feet by Guavus, Inc. in San Mateo City.
  • For the 13.4-million-square-foot South San Mateo submarket, Reis reports a vacancy rate of 16.1%, and an average asking rent of $42.22 psf, second highest among the submarkets and the highest in the suburbs.
  • The vacancy rate was unchanged during the second quarter, but it is down 80 basis points from a year earlier. Both the average asking rent and the average effective rent rose 1.0%, the latter to $35.13 psf. Rents are up 7.7% asking and 9.2% effective from a year earlier.
  • Cassidy Turley reports a 14.4% vacancy rate, and a $53.16 psf average asking rent for 7.6 million square feet in South San Mateo County.
  • Net absorption was negative here in the second quarter, according to this source. “In terms of negative growth, this quarter’s biggest loser was the Redwood City submarket. This trade area posted occupancy losses in excess of 144,000 square feet as its vacancy rate climbed from 10.7% to 14.9%. Redwood Shores followed with nearly 88,000 square feet of space going dark as its vacancy rate climbed from 7.4% to 8.8%.”
  • “Redwood City captured three of the top five lease transactions this quarter,” according to Cushman & Wakefield’s report on the Peninsula market. “The largest deal was Heartflow, Inc. leasing 102,981 square feet at 1400 Seaport Boulevard, bringing the occupancy to 100% for this building. Evernote relocated its headquarters from Mountain View to Redwood City and expanded into an 89,825-square-foot Class A space. The overall vacancy rate in Redwood City plunged from 14.9% one year ago to 6.5%, an 8.4 percentage point (pp) decrease, the greatest year-over-year decrease in the San Francisco Peninsula market.”

Marin County

  • The 5.6-million-square-foot Marin County submarket has a vacancy rate of 23.9%, highest among the submarkets, and an average asking rent of $30.08 psf, the lowest.
  • Marin’s vacancy rate decreased 20 basis points during the second quarter but is up 120 from a year earlier. Rents changed little during the quarter, with the effective average at $23.48 psf. Rents are only up 0.5% asking and 0.6% effective year-over-year.
  • Cassidy Turley reports a vacancy rate of 15.5%, unchanged from the prior quarter, and an asking rent of $29.64 psf in Marin.