Avison Young: San Francisco Office Market Report Q2 2014

READ FULL REPORT HERE

Prepared by Kathryn Driver, Market Researcher

Approaching the second half of 2014, the job market in San Francisco is continuing to grow. With over 465,000 city residents employed, the San Francisco unemployment rate dropped to 4.4%, the lowest the county has witnessed since 2008 and the third-lowest in California. The two counties with lower unemployment rates are neighboring San Mateo and Marin counties, a mark of the success of the region. The technology sector has been and continues to be a large contributor to this success, accounting for 30% of job growth since 2010 and accounting for over 1.5 million sf of leased office space this quarter.

Pre-leasing large blocks of space remains a prime option for large tech companies looking to grow within the city. Three of the top 5 deals involved pre-leasing, including Salesforce who took over half of the Transbay Tower (delivering Q1 2017) with a 713,727 sf lease. Other pre-leases included two full buildings: LinkedIn signed a deal for all 450,000 sf at 222 2nd Street as well as Splunk, who grabbed all 182,000 sf at 270 Brannan Street. All five of the top 5 leases in Q2 were technology companies, including an Uber expansion of 130,434 sf at 1455 Market. Braintree also signed a 63,285 sf lease at 123 Townsend.

The second quarter saw an increase in investment transaction volume compared to the first quarter. The South Financial District remains a hotspot for office investment as it housed three of the top 5 investment sales including 55 2nd Street, which fetched the highest price per square foot this quarter ($730). Genzon Group purchased 225 Bush Street for $350M ($629 psf), which was the largest building sale of the quarter. With multiple high-valued buildings, such as 405 Howard Street and 650 California Street, currently on the market and many more expected to come, the San Francisco office investment market will remain healthy throughout 2014.

The second quarter of 2014 marked the 17th consecutive quarter of positive absorption and with multiple companies in the market for over 100K SF, expect absorption to continue to stay positive throughout 2014. With demand remaining high, rental rates rose again in Q2, marking the 14th consecutive quarter of rental rate increases. If the San Francisco office market stays on this trend, rental rates are expected to increase throughout the rest of the year.

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