The Peninsula Industrial Pros

Your Commercial Real Estate Source in the San Francisco Bay Area

Kidder Mathews Q1 San Francisco Office Report

After a strong fourth quarter, leasing activity in the first quarter of 2014 has been red hot, with over ±350,000 square feet in positive net absorption. For the first time since the late 1990’s dotcom boom, tenants are now in the market for more space than is currently available, leading to a game of “musical chairs.” Tech and biotech companies continue to be major players in the market, however, all industries in the region are looking strong and will play a role in leasing going forward.

Market Drivers

EMPLOYMENT. San Francisco’s unemployment rate continues to drop while the population continues to grow. San Francisco unemployment rates have decreased from 5.2% in November to 4.8% in December. In the past year, San Francisco created 16,000 jobs while its population grew by approximately 10,000 people. These trends are expected to continue until San Francisco reaches a population of one million, at which point it should level out. The California unemployment rate stayed consistent from November to January at 8.5%. The national employment rate has fallen from 7% in November to 6.7% in February.

CONSTRUCTION. Currently, over 3 million square feet of office space is being constructed with over 2 million additional square feet scheduled to start construction this year. The largest office buildings under construction that have not been preleased include: the Transbay Tower at 415 Mission (1,370,000 square feet), of which Salesforce is rumored to be interested in 600,000 square feet; 350 Mission (451,000 square feet); 181 Fremont (416,000 square feet); and 535 Mission (307,000 square feet), of which Trulia has pre-leased 80,000 square feet. Even with over 2.2 million square feet under construction and not yet leased, and with strong leasing activity anticipated, we do not expect all space availability issues to be resolved.

PRELEASING. Many of the new buildings under construction have pre-leased much or all of their space before completion. Trulia has taken the bottom third of 535 Mission (80,000 square feet) and Dropbox has taken all of 333 Brannan (180,000 square feet). 333 Brannan is an interesting arrangement because they are being built by different developers. Dropbox also took all of 345 Brannan (115,000 square feet). Besides tenants pre-leasing in those new buildings, multiple buildings are being gutted and leased before completion. Twitter leased all of 1 Tenth St. (313,206 square feet) and Eventbrite took 97,636 square feet at 155 5th, the new University of the Pacific building. This extensive pre-leasing means that there may be less softening of the market than would be anticipated by looking at the construction data alone. There has also been speculation about Salesforce pre-leasing a significant amount of the Transbay Tower and Box pre-leasing all of 222 Second.


Read entire report here: office-market-research-san-francisco-2014-1q

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This entry was posted on May 7, 2014 by in Market Updates, Office, Peninsula, San Francisco County and tagged , .
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