Part 1 of 2

SAN FRANCISCO—“With memories of the Great Recession of 2008 receding faster with each passing quarter, a wave of technology companies continued to surge into San Francisco at unprecedented levels during the fourth quarter, devouring existing office space by signing long-term leases and buying once-languishing investment properties, translating into a healthy fourth quarter and foreshadowing what should be a robust 2015.” That is according to a recent Q4 report from Colliers International on the local office market.

With positive net absorption of more than 257,000 square feet recorded in the fourth quarter, the firm says that San Francisco eclipsed the annual absorption level recorded for the past 12 years with 2.8 million square feet of net growth for the year, far exceeding the City's annual average of about 1.1 million square. “The final three months of the year also was the 18^th consecutive quarter of positive net absorption, an enviable record by any measure, but especially when compared to many other major metropolitan areas that have continued to witness stubbornly high vacancy rates and inconsistent rates of absorption,” Colliers reports.

Executive managing director Alan Collenette, notes that “San Francisco's Golden Age is here now. This is the Gold Rush, and the currency is innovation. The City is now the undisputed urban epicenter of the world's knowledge-based economy.”

Collenette says that “The rate of acceleration in the Bay Area economy dwarfs that of the US, a contrast that makes San Francisco's explosion all the more stunning. It is impossible to overstate the cause and effect of the deluge of tech sector venture funding entering the Bay Area (51 percent of all U.S. VC money), as it encounters a heavily constrained supply of office space and housing.”

Due to new construction hitting the market, the vacancy rate remained flat this quarter at 7.5%, the report says. Vacancy has decreased for four straight years, the report said, and that's a 51% shrinkage rate since the most recent peak of 15.2% in 2010.

For the year, 1.5 million square feet of newly completed space was added to the market, the report disclosed. Overall, the City had a total 89,580,305 square feet of existing office space in all classes at year end. Colliers also reported 5,161,899 square feet of office space under construction at year end with another 12,643,043 either proposed or in various stages of planning.

As a result of the high volume of leasing and sales, occupancy levels climbed in several of the City's key submarkets during the quarter, including the South Financial District and Potrero East submarkets, which experienced the biggest jumps in occupancy at 148,453 and 99,930 square feet of positive net absorption, respectively.

Stay tuned for more from this report in part 2 of the story, where Colliers reviews demand, and who will absorb the space quickly.