By Meghan Hall
San Francisco’s seemingly sluggish capital market during the first two quarters is a thing of the past, with sales volume reaching new heights during the third quarter of 2019. According to COMMERCIALCafe, a commercial real estate analytics website, San Francisco saw its office sales volume grow by 106 percent from the second quarter and 124 percent from the third quarter of 2018. The jump in sales volume means that San Francisco has had its best quarter in nearly five years.
“The San Francisco and Bay Area markets are benefiting from the period of economic growth that we’ve witnessed in the past decade, with the added factor of a vibrant tech sector,” explained Lucian Alixandrescu, writer for COMMERCIALCafe and author of the report. “All things considered, commercial real estate sees high demand here.”
During the third quarter, San Francisco office deals came to about $2.6 billion, with the median price per transaction settling at around $770 per square foot. 16 deals closed during the quarter, totaling 3.3 million square feet, the largest amount of square footage traded since the fourth quarter of 2016.
Three of the top five office deals in the Bay Area were concentrated in the San Francisco submarket, the largest being the sale of the Levi Strauss & Co. headquarters and Levi’s Plaza to Atlanta-based Jamestown. Jamestown acquired the property for $826 million from Gerson Bakar and Associates. The 863,000 square foot property is 99 percent leased to Levi Strauss until 2022. Jamestown also owns Ghirardelli Square as part of its portfolio.
Beacon Capital Partners also purchased 650 Townsend from Zynga—the company’s headquarters—for just under $602.7 million, while WeWork bought 600 California street for a healthy $330 million from MEPT.
However, the largest deal of the quarter was inked outside of San Francisco, indicating the strength of the Bay Area market as a whole. Google paid top dollar when it bought Yahoo!’s Sunnyvale complex from Verizon for $1 billion. The complex is located in the Moffett Park neighborhood and made waves after another $1 billion Google acquisition, when the tech company acquired HCP’s Britannia Shoreline Technology Park for the same price tag.
“Q1 and Q2 have historically been rather slow for the Bay Area and San Francisco markets – with Q1 2018 bringing a record-low sales volume of only $430 million in San Francisco. The considerable spike in this year’s Q3 can be attributed to several large deals; in fact, the $1 billion price tag on Google’s Sunnyvale purchase is more than twice that of the largest deal in Q1 and Q2 – the $494 million transaction between Starwood and CIM Group in March.
The transaction, according to industry reporting, is believed to be the largest dollar transaction in the Bay Area in 2019, and has brought Google’s investment in Northern Sunnyvale to more than $2.4 billion.
“The sale of the Yahoo! Sunnyvale Complex is notable not only because of the considerable sum of money it involved, but also because it proves that the tech sector in the Bay Area is far from saturated,” added Alixandrescu. “Additionally, it signals further expansion from Google parent Alphabet, and more Googleplex-style tech campuses will have a positive effect on all aspects of the San Francisco and the greater Bay Area economy.”
In another large regional transaction, Apple purchased the Cupertino City Center from American Realty Advisors for $290 million, topping out an overall busy quarter for the greater Bay Area office market, which is the report notes is also quite healthy. The regional office market saw $2.9 billion in total sales volume spread across 23 transactions—a 35 percent increase from second quarter’s $2.1 billion dispersed amongst 30 deals. The increase shows that more money is being moved in a smaller number of significant transactions, and available inventory is more highly valued.
Investor interest in both markets and tech’s increasing need for space has driven healthy, if not crowded development pipeline. During the third quarter, there were 14 deliveries that added to San Francisco’s office inventory and four in the wider Bay Area. The Exchange on 16th added 750,000 square feet to the San Francisco office market; during the fourth quarter, the anticipated of The Chase Center will add 680,000 square feet of office. Over in Sunnyvale, Moffett Towers II Buildings 3-5 were brought to market and total more than one million square feet of office space, while in Oakland, Uptown Station is scheduled for December launch and will contain 404,000 square feet.
For Alixandrescu, the both the San Francisco and greater regional office market are likely to remain a safe bet for investors, noting that “Investors should notice this heightened interest in the tech sector and consider betting on it, should this growth continue.”
