By Meghan Hall
It is no secret that competition for office space in San Francisco is fierce, particularly for larger floor plates as the Bay Area’s biggest companies compete for the City’s limited supply. However, a new market report recently released by CBRE shows just how much demand continues to outpace supply: since the dot-com era, transactions above 100,000 square feet have doubled in the city of San Francisco, driven predominately by tech firms experiencing accelerated industry growth since 2011. This growth has accounted for more than 22 million square feet of space over the last eight years.
According to CBRE, the market is especially imbalanced when examining blocks of space at the largest and smallest ends of the scale. Demand for spaces larger than 100,000 square feet is more than 10 times available supply, while smaller spaces — those 10,000 square feet or less — has 13 times the options for tenants.
“There are more tenants looking to expand their footprints and hire more workers as they grow their businesses,” said CBRE’s Research and Analysis Manager for San Francisco, Lexi Russell. “These large and growing tenants, predominantly in the tech industry, have been expanding at a rapid pace and are aware of the limited space opportunities available that may stunt their growth prospects.”
During the dot-com era from 1995 to 2000, there were 67 leases 100,000 square feet or larger, totaling 11.3 million square feet. At the time, 28 percent of that was attributed to tech occupancy. Since 2011, there have been 117 leases totaling nearly 22.2 million square feet, 73 percent of which have come from tech companies.
CBRE’s report states that there is currently 6.8 million square feet of office space available in the market, compared with 7.1 million square feet of tenants looking for space. Currently, there is a total of 1.5 million square feet of office space under construction. Supply outstrips demand for space for leases smaller than 30,000 square feet, while supply and demand are about equal for offices above 30,000 and under 50,000 square feet, with about 770,000 square feet of supply versus 760,000 square feet of demand. Above 50,000 square feet, demand steadily outpaces supply.
This trend is not expected to change drastically over the course of 2019, and the market will remain favorable towards landlords, said Russell, meaning that rents are likely to increase further throughout the year. However, the city’s tight market could have some drawbacks, forcing companies to leave the Bay Area due to lack of available — and affordable — space.
“Tenants will continue to look for space to satisfy their needs to attract talent and maintain an innovative culture,” explained Russell. “However, cost and space limitations could push some tenants to other markets, potentially outside the Bay Area.”