SAN FRANCISCO—“Second quarter was a very active quarter in San Francisco with two major trends: Record-breaking leasing and the surge of companies finally moving into spaces caused the needle to move in a big way.” So says Caroline Rooney, Northern California research director at Cushman & Wakefield.
According to Rooney, “Market statistics are finally catching up with sentiment in many of the tech-centric submarkets that have felt tighter than the numbers have previously shown.”
The firm’s Q2 numbers show that the major news was that many of sizable tenants that signed deals at year-end or in Q1 moved into those spaces during Q2, causing the overall vacancy rate in non-CBD submarkets to drop to 8.6%, a 240-basis-point decline in just one quarter. Large moves included Practice Fusion, Illumina, Eventbrite, Cengage Learning and Lyft, all occupying spaces greater than 50,000 square feet.
In addition, according to Rooney, the non-CBD overall vacancy rate to 8.6% finally dipped below the CBD’s 9, the first time since 1999 that has occurred. “Leasing activity registered a robust three million square feet during Q2, the highest level since Q1 of 2000. In addition to the sizeable Salesforce lease of 713,727 square feet at the start of the quarter, other notable leases include LinkedIn (450,209 square feet), Splunk (182,000 square feet) and Uber Technology‘s expansion of 131,070 square feet.”
Market-wide, the overall vacancy rate, according to C&W numbers, stands at 8.9% as of Q2, the lowest level since Q2 2001. “Rents continued more modest increases during the quarter compared to more robust growth just three years ago,” says Rooney. “Direct class A rents market-wide increased 2.4% quarter-over-quarter and 9.6% year-over-year to $60.07 per square foot, and direct class A rents in the CBD rose 1.7% quarter-over-quarter and 9.6% year-over-year to $61.25 per square foot.”
On the investment side, a number of assets coming to the market are “attractive competitive buyers,” C&W says. “The torrid pace of leasing and rising rents, combined with large amounts of capital chasing San Francisco assets, are encouraging current owners to harvest gains as prices have risen to $600 to $700 per square foot, with well-leased assets trading at $800 per square foot,” says Rooney. “Even properties that traded two years are coming to the market given the strong pricing.”