California CRE News In Your Inbox.
Sign up for Connect emails to stay informed with CRE stories that are 150 words or less.
C&W Notes ‘Throttle Eases’ in San Francisco Office Market
Cushman & Wakefield’s latest 2Q 2016 office market report reveals that the San Francisco CRE market, which soared along on its longest “up-cycle” in decades, is showing signs of easing back on the throttle.
Recent changes in the tech sector – the single most influential contributor to this local economic expansion – are affecting the local office market. The emergence of slow or no growth policies is causing a significant increase in new, vacant sublease space. M&A activity is also on the rise, which could lead to more sublease space.
Citywide, the overall vacancy rate sits at 7.3%, up 160 basis points from the first quarter of 2016, marking the largest quarterly increase since Q1 2009. Asking rents continued to climb, closing at a record high of $69.30 per square foot. Sublease vacancy stood at 1.5 million square feet, up from the 822,000 square feet reported one quarter ago, with tech accounting for 48.0% of the latest figure.
- CBD overall vacancy landed at 8.0% in the second quarter of 2016, up from both the 6.5% reported last quarter and the 7.4% reported one year ago.
- Non-CBD vacancy increased 180 BPS over the quarter to 5.9% from 4.1%.
- The North Financial District Class A submarket recorded the highest negative net absorption: 386,245 square feet square feet. However, Class A average asking rent still recorded an increase of 1.1% to $71.42 PSF.
- Four office buildings were completed in Q2, all of which were delivered 100% pre-leased:
- Kilroy Realty Corporation’s 444,000-square-foot building at 350 Mission St. in the South Financial submarket (100% Salesforce occupied);
- Dropbox’s HQ at 333 and 345 Brannan St.; and
- Splunk’s building at 270 Brannan Street.
- 8 million square feet of space was under construction Citywide, with 25.0% pre-leased, at end of Q2 2016.
- New leasing activity totaled 1.3 million square feet in Q2, down from 1.4 million square feet last quarter and the lowest second quarter figure since 2009.
- While uncertainty (China, oil, Brexit fallout, US election, etc.) continues to be a major theme in the capital markets, the San Francisco office market is still viewed as an attractive investment for institutional, high net worth, and foreign capital.
For comments, questions or concerns, please contact Dennis Kaiser
- ◦Development
- ◦Lease
