From Q1 2010 through Q1 2011 East Coast markets dominated the office market recovery. Those markets are now lagging and West Coast markets, Northern California in particular, are driving the national office market recovery, says Jones Lang LaSalle in Second Quarter 2012 reports released today.
Northern California is accounting for the lion’s share of net absorption nationally. With only 6.7% of the national office inventory, San Francisco and the SF Peninsula, Silicon Valley, the East Bay and Sacramento combined accounted for 23% of national net absorption in Q2 2012.
- Technology industry growth is driving office demand in Northern CA, particularly in San Francisco and Silicon Valley.
Nationally, the dominant tech markets – including San Francisco and the SF Peninsula, Silicon Valley, Seattle, Portland and Austin – are driving the office market recovery, accounting for 46 percent of net absorption year-to-date through the second quarter, or 4.9 million square feet total.
- Net absorption in these markets represents 0.9% of total national office stock. Net absorption of all U.S. markets combined accounted for just 0.1% of total U.S office stock.
Market fundamentals continued to improve throughout the Northern California region, with tech-heavy Silicon Valley and San Francisco making the greatest strides in terms of rent growth and net absorption.
- San Francisco leads the region and nation in rent growth as overall asking rates have seen an increase of more than 30 percent since the market bottomed in 2010.
- Silicon Valley suburbs reported the highest net absorption in the region with over 1.3 million square feet absorbed in the second quarter. San Francisco’s CBD trailed with nearly 350,000 square feet absorbed.
CBD market fundamentals are strongest in San Francisco as tech companies of all sizes continue to drive demand, resulting in steady rental rate increases.
While the Oakland and Sacramento CBD markets are struggling to gain traction, and have yet to see the same robust growth as San Francisco, their time may be coming soon. Although there is currently no new development activity in Sacramento and the East Bay, tenants have a plethora of quality space options available, including large blocks of ‘creative’ space, until a more widespread economic recovery takes hold.
Silicon Valley’s suburbs, home to the region’s tech giants, is the most active in terms of new construction as developers are seizing the opportunity to deliver large blocks to space-hungry companies.