Avison Young: San Mateo County Office Market Report Q1 2014

READ FULL REPORT HERE

For the first time in 14 quarters, total leasing activity fell below 700,000 sf in San Mateo County; however, the county witnessed 60,000 sf in occupancy gains in Q1 2014, ending the quarter with a vacancy rate of 10.4%. The lack of new vacant space to hit the market during the first three months of the year enabled the county to experience minimal occupancy gains despite slowed activity.

Southern San Mateo County, which is comprised of Belmont/San Carlos, Redwood City, and Menlo Park continues to house the most sought after office space in the county, recording only 6.3% vacancy. Menlo Park, which borders one of the hottest real estate markets in the country in Palo Alto, demands the highest average rents in the county ($5.11 psf FS). Redwood City, which borders Menlo Park to the north, witnessed the biggest spike in rents in the county over the past three months, increasing by 7.1% to $4.05 psf FS.

Central San Mateo County, which is comprised of San Mateo, Foster City, and Redwood Shores is home to corporate giants like Visa, Oracle, EA Sports, and Sony PlayStation. With 11 existing vacant spaces over 50,000 sf totaling over 780,000 sf and 1.3 million sf of entitled build-to-suit opportunities, central San Mateo County is looking to add another household name to their resume. Central county closed the quarter with a 9.9% vacancy rate and an average asking rate of $3.69 psf FS.

North San Mateo County has struggled to keep up with the central and southern submarkets, as it recorded a 16.9% vacancy rate to close the quarter and a $2.82 psf FS average asking rate. The average asking rent for the entire county remained flat quarter-over-quarter, holding steady at $3.49 psf FS.

Developers are taking advantage of low vacancy and rising asking rates in southern San Mateo county as Kilroy and Hunter Storm have teamed up to build a 300,000 sf speculative office complex dubbed Crossing/900 in downtown Redwood City. This project sits adjacent to CalTrain and all of the amenities that downtown Redwood City has to offer. With an expected delivery date of Q1 2015, Crossing/900 is exactly what many modern companies are looking for, partly due to it being a new class A office building and partly because of the location. Most growth companies on the Peninsula want to be at a location easily accessible by CalTrain and within a 24/7 environment in which to live, work and play.

San Mateo County is bordered by two of the hottest real estate markets in the country, San Francisco and Palo Alto. Tenant activity in these markets is showing no signs of slowing down, resulting in increasing asking rates and limited supply. Well established companies that may be focused on their bottom line could eventually seek shelter from these high priced markets and look to relocate to neighboring cities on the Peninsula where they can dramatically reduce their facility costs.

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