July 14, 2016 Comments Off on C&W Notes ‘Throttle Eases’ in San Francisco Office Market Views: 377 Bay Area, California News, West

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.

SF C&W Q2 SF Office Slide 5 SF C&W Q2 SF Office Slide 6

Read More at Cushman & Wakefield San Francisco Marketbeat

Connect with Cushman & Wakefield’s Derek Daniels

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