SAN FRANCISCO—Strong leasing activity tightened available space supply during the second quarter and steepened the upward rental rate trend. So says a recent San Francisco office market overview from CBRE. “High-tech companies expanded more aggressively throughout the city and were responsible for eight of the 10 largest leases during the quarter, further depleting both new and existing office space supply.”
More than 1.3 million square feet of new construction space was pre-leased this quarter by three high-tech firms and when combined with existing space, the high-tech sector was responsible for 60% of 4 million square feet overall, says the firm’s report. That compares with 50% and a quarterly leasing activity average of 3 million square feet in 2013.
Looking ahead in the second half of the year, CBRE says that the high-tech industry will continue to dominate the office landscape. “Within the next 12 months, four additional new construction projects are expected to deliver 1.3 million square feet to the market, though this space is already 82% pre-leased and therefore not expected to significantly ease supply constraints.”
The firm points out that if demand holds steady during this time, rental rates are expected to push even higher. “This will be an important test to determine how much higher asking rates can climb before hitting a demand resistance level.”