It’s not like San Mateo County has missed out on the current tech-driven economic boom in the Bay Area.
“We’ve been doing well since 2010,” said Mike Moran, managing principal in the Burlingame office of commercial real estate services firm Cassidy Turley. “We just happen to be sandwiched between San Francisco and Mountain View—two of the hottest markets in the world.”
Although companies have shown a voracious appetite for office space in San Francisco and Silicon Valley, San Mateo County has caught a fair amount of attention as well. According to Cassidy Turley research, San Mateo County over the last four years has seen average asking rental rates for offices climb from about $2.70 to $3.73 per square foot on a monthly full-service basis while vacancy rates have steadily declined from more than 17 percent to 13.8 percent.
Now San Mateo County is poised to command even more attention for offices as San Francisco and Silicon Valley continue to experience supply-and-demand issues and skyrocketing rents. Compared to those sizzling markets up north and down south, San Mateo County offers more affordable rents and fewer traffic problems among other advantages, local real estate brokers said.
“San Mateo County is quickly becoming the new hot location for tech companies to land, grow and expand,” Moran said. “If you look at the venture capital money invested in new companies, the large portion of the newly distributed funding is going to San Mateo County companies. We’re going to see lots of activity from companies looking for modern space. San Mateo County has less congestion, no parking costs and significantly more housing alternatives compared to San Francisco.”
Todd Campbell, vice president of research for commercial real estate services company Avison Young in Foster City, agrees that investors have the county in their sights. For the first time since 2007, the county surpassed more than $500 million in sales volume during the second quarter this year, according to Campbell.
He noted that nine deals closed during the quarter at an average of $402 per square foot with the largest investment transaction involving Clearview Business Park in San Mateo—a 270,000-square-foot site that sold for approximately $126 million ($465 per square foot). New York-based Deutsche Asset & Wealth Management acquired the business park in partnership with Belmont, Calif.-based Embarcadero Capital Partners earlier this year. The 22-acre office park at 3000-3155 Clearview Way is fully occupied and tenants include solar power provider SolarCity and wearable camera company GoPro, Inc.
He predicts asking rates to continue to rise in the county, keeping investors active here. “San Mateo County is a hot market right now,” Campbell said.
Yet, the county is still cheaper than San Francisco and Silicon Valley and has the available space that those other markets lack. “There’s only so much new construction you can do in San Francisco,” Campbell said, “so people will come down to look at the Peninsula, where the asking rates are 30 to 40 percent less.”
The leasing activity in San Mateo County over the past year also indicates a market that is heating up. Net absorption for the county was 130,000 square feet from the third quarter of 2013 to this year’s second quarter, according to Campbell. That compares to the occupancy loss of 150,000 square feet during the previous 12 months.
“It points to a market gearing toward a lot more net absorption in the next 12 months,” Campbell said.
In the next 24 months, he added, growing and well-established companies will start venturing into the county, especially in the central and northern parts as the southern area already has a very low vacancy rate and minimal large blocks of space available.
But Marty Church, senior vice president in the Redwood Shores office of commercial real estate firm Kidder Mathews, expressed a more tempered outlook for San Mateo County.
“I see continued modest growth,” Church said.
The demand is still squarely north and south of the county as young highly skilled workers are drawn to the urban lifestyle and appeal of major tech companies in San Francisco and Silicon Valley, he said.
“Sometimes I think San Francisco is sucking the life out of us, particularly in the north Peninsula,” he said. “You think the higher rates and lack of space in San Francisco would benefit San Mateo County, but that hasn’t happened yet. It’s overcome by cultural forces.”
Still, Moran remains bullish on San Mateo County. “Despite the flight to urbanism, a lot of companies are choosing to start and grow in San Mateo County,” he said. “In just the last 30 days, for instance, there have been a dozen or so fresh startups touring the county looking for sites.”
Moran pointed out that Crossing 900, an approximately 300,00-square-foot Class A office development under way in Redwood City, could spark further interest in San Mateo County.
“The outlook calls for much of the office activity happening in the mid-Peninsula around Redwood City with Crossing 900 taking shape,” he said. “San Mateo County is trending toward new construction with the quality and pricing. Tenants want new construction whether it’s an existing building getting renovated or ground-up development. They are willing to pay the premium.”