JLL: Northern California Q4 Office Markets Lead Nation

Here is a summary analysis of office market statistics and activity in the fourth quarter 2012 in Northern California markets provided by Amber Schiada and Julia Georgules of Jones Lang LaSalle‘s Research team (contact info below).

The attachments include 4Q NorCal office statistics as well as several charts and tables comparing Northern California office markets to the rest of the country.  These charts show that Northern California (Sacramento, Oakland-East Bay, San Francisco, San Francisco Peninsula and Silicon Valley) office markets were significant contributors to the national office market recovery in 2012, accounting for more than 22.9 percent of total net absorption among major markets within the U.S. tracked by Jones Lang LaSalle.  The region is benefitting from improving economic conditions and especially strong activity within the high-tech services sector.

Tech demand has been strongest in San Francisco and Silicon Valley, while the East Bay and Sacramento have enjoyed a boost in demand from the professional services and healthcare sectors.

Key highlights for the region and individual markets are below:

Total vacancy in Northern California declined by 90 basis points to 15.7 percent, driven by steady vacancy declines in every market.  

  • On aggregate, total vacancy declined most dramatically in in the NorCal suburbs, by 1.2 percentage points to 17.1 percent.
  • The NorCal aggregate CBD markets recorded a quarterly decline of just 30 basis points, but vacancy remains lowest at just 12.6 percent.
  • San Francisco recorded the lowest CBD vacancy at 10.5 percent within the Class A and B market, driven by several move-ins during the quarter, including Salesforce’s occupancy of nearly 100,000 square feet in the South Financial District, an expansion for the company. 

Net absorption in the region totaled more than 1.8 million s.f., bringing year-to-date net absorption to nearly 6.5 million s.f.

  • Tech-heavy Silicon Valley recorded the highest level of net absorption during the quarter, at 801,375 s.f., or 6.3 percent of total inventory.
  • Overall, the Northern California suburbs are driving total absorption gains throughout the region, accounting for 1.5 million s.f. of quarterly net absorption, or 85 percent of the total. Year-to-date, Northern California suburban net absorption totaled 5.7 million s.f., or 87.6 percent of the total net absorption for the region.

The tech-heavy submarkets are highly competitive for occupiers, and landlords are pushing rents in response to strong demand.

  • San Francisco commands the highest rent per square foot in the region, at $52.95 in the CBD, and $50.81 in the non-CBD submarkets.
    • Mission Bay asking rents averaged $61.46, the highest within San Francisco as a result of its relatively newer office stock
    • Yerba Buena recorded the largest rent increase during the quarter, of 12.9 percent, to $54.99. The submarket is centrally located between Union Square, Mid-Market and SOMA, making it highly desirable for tech, creative, and media companies.
  • Even though rents are relatively moderate at $37.32 per s.f. in the Silicon Valley suburbs, some submarkets there command the highest rents in the region:
    • Palo Alto asking rents increased by 1.7 percent during the quarter to $80.76 per s.f.
    • Mountain View rents reached $52.56 per s.f., up 0.2 percent during the quarter.
    • Sunnyvale rents reached $49.08 per s.f., up 3.4 percent from the previous quarter.

Development activity is ramping up throughout Northern California, with more than 4.0 million s.f. of construction under way, and 1.1 million s.f. completed in 2012.

  • Silicon Valley has the lion’s share of under-construction projects, with nearly 2.4 million s.f. under way, all of it in the suburbs. Roughly 60 percent of this new construction is already pre-leased.
  • San Francisco construction activity is ramping up as a result of continued tenant demand for large blocks of space, especially within the tech sector. More than 1.4 million s.f. is currently under way with several projects in the planning stages yet to break ground.

Leasing activity remained strong throughout the year, with several ground-breaking deals signed during the fourth quarter in select markets.

  • Salesforce continued to make waves in San Francisco, leasing nearly 775,000 s.f. in three deals in December. Their total occupancy will exceed 1.8 million s.f. by 2015.
  • Silicon Valley saw a number of deals exceeding 100,000 s.f. (Amazon, Palo Alto Networks, Service Now and Apple)
  • Sutter Health leased more than 400,000 s.f. in two deals in Sacramento.
  • Pacific Gas & Electric committed to 145,000 s.f. in the East Bay, adding to their existing 250,000 square-foot footprint in San Ramon.

Links to local market office highlights and statistics can be found here:



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