SAN FRANCISCO—According to a recent report from Kidder Matthews, market drivers for the San Francisco area include employment, construction, and preleasing, according to Kidder Mathews. As for the spotlight? It’s no secret that San Francisco and the rest of the Bay Area’s economy is heavily dependent on the technology sector, says the firm.
San Francisco’s unemployment rate continues to drop while the population continues to grow, says the firm’s recent report. San Francisco unemployment rates have decreased from 5.2% in November to 4.8% in December. In the past year, San Francisco created 16,000 jobs while its population grew by approximately 10,000 people, the report says. “These trends are expected to continue until San Francisco reaches a population of one million, at which point it should level out. The California unemployment rate stayed consistent from November to January at 8.5%. The national employment rate has fallen from 7% in November to 6.7% in February.”
As for construction, currently, more than 3 million square feet of office space is being constructed with over 2 million additional square feet scheduled to start construction this year. The largest office buildings under construction that have not been preleased include: 350 Mission (451,000 square feet); 181 Fremont (416,000 square feet); and 535 Mission (307,000 square feet), of which Trulia has pre-leased 80,000 square feet—among others. Even with over 2.2 million square feet under construction and not yet leased, and with strong leasing activity anticipated, we do not expect all space availability issues to be resolved.
Many of the new buildings under construction have preleased much or all of their space before completion, the firm’s report says. Trulia has taken the bottom third of 535 Mission (80,000 square feet) and Dropbox has taken all of 333 Brannan (180,000 square feet). 333 Brannan is an interesting arrangement because they are being built by different developers. Dropbox also took all of 345 Brannan (115,000 square feet). Besides tenants preleasing in those new buildings, multiple buildings are being gutted and leased before completion. Twitter leased all of 1 Tenth St. (313,206 square feet) and Eventbrite took 97,636 square feet at 155 5th, the new University of the Pacific building. “This extensive preleasing means that there may be less softening of the market than would be anticipated by looking at the construction data alone. There has also been speculation about Salesforce preleasing a significant amount of the Transbay Tower and Box preleasing all of 222 Second,” says the firm.