Kidder Matthews Peninsula Industrial 2nd Quarter 2014

The San Francisco Peninsula saw 606,574 square feet of positive net absorption this quarter, and 1,159,864 square feet of positive gross absorption. The industrial market continues to stay productive with deals of all sizes completed throughout the San Francisco Peninsula in the second quarter of 2014. San Mateo County experienced minimal occupancy losses as well, which is not due to a lack of demand on the Peninsula, but rather a shortage of quality available space.

Vacancy on the Peninsula declined 160 basis points, ending the quarter with a 4.4% total vacancy rate. Rental rates averaged $0.85 per square foot, NNN. Demand continues to remain strong throughout the Peninsula.

The second quarter saw a steady flow of notable transactions throughout the Peninsula market. South San Francisco had the largest transactions, including 251-277 Wattis Way, a ±67,200 square foot industrial building purchased by Marcia Moriarty. The second quarter’s largest lease transaction was for 455 Valley Drive in Brisbane, a ±105,000 square foot space taken by Greenleaf Produce Company.

The Peninsula market, to some extent unfazed by the slow recovery of our national economy, continues to be a safe haven for real estate investment dollars. The second quarter saw a good amount of lease activity as well as some large sale transactions.

The demand for industrial acquisitions continues to be strong as interest rates remain historically low, despite the slight increase in the past year. While this small uptick in interest rates has been a cause for some concern for user and investor buyers, especially with the small and shrinking supply on the Peninsula, we forecast more demand from a diversified mix of both users and investors this year. This will continue to force vacancy down further and force rental rates and property values to increase at a steady pace.

Notable Lease TRANSACTIONS

Greenleaf Produce Company: 455 Valley Drive, Brisbane 105,000 SF
Flying Food Group: 240 Littlefield Avenue, South San Francisco 69,500 SF
Inside Source, Inc.: 1205 Hamilton Court, Menlo Park 59,075 SF
JSI Shipping: 1535 Rollins Road, Burlingame 52,150 SF
PG&E: 60 Park Lane, Brisbane 40,660 SF
Roscoe Medical, Inc.: 815 Rollins Road, Burlingame 34,400 SF
Walmart Stories, Inc.: 1100 Hamilton Court, Menlo Park 31,899 SF
United Logistics: 25 Ingold Road, Burlingame 28,650 SF

Notable Sale TRANSACTIONS

Marcia Moriarty: 251-277 Wattis Way, South San Francisco 67,200 SF
B5 Interests LLC: 233 Michelle Court, South San Francisco 46,780 SF
City of San Carlos: 595 Industrial Road, San Carlos 32,320 SF
City of San Carlos: 850 San Carlos Avenue (E), San Carlos 29,200 SF
RII Properties, LLC: 1669 Bayshore Highway, Burlingame 24,000 SF
Joso Investments, LLC: 340-342 Harbor Way, South San Francisco 24,000 SF

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