Flaws remain for office in the San Francisco Peninsula office — but demand is starting to improve, as net absorption was -406.3 million in the second quarter, a market report from Colliers finds. That's an improvement from the -538,700 square feet in the previous three months and the -431,100 posted 12 months ago.
Also, keep in mind that this marks the eighth straight quarter of negative absorption. Overall, it's been a fight to quality — a trend that's been common through the national office market in the post-pandemic world.
"Demand remains bifurcated, with downtown and amenity-rich areas capturing most new leases this quarter," Colliers wrote.
Despite the improvement, categories in the second quarter remained weak, almost entirely across the board in the San Francisco Peninsula. Asking lease rates averaged $6.17 per square foot, down 23 cents per square foot year-over-year. Daly City averaged the lowest prices, at just $3.42 per square foot.
Additionally, vacancies saw a notable tick up by 3.5 percent from the previous 12 months to 18.7 percent.
"The largest contributor to this increase was the completion of one building in Redwood City’s Elco Yards project, adding 117,000 of vacant space to total inventory," Colliers wrote in further context.
"Sublease space was also a factor; notably, Bristol Myers Squibb put 57,631 square feet up for sublease at 1200 Sierra Point Parkway in Brisbane, as well as Opportun, which vacated their final floor at 2 Circle Star Way in San Carlos."
Meanwhile, other than demand improving, Bay Area investors can take a couple of other positives out of the second quarter. While sales volume dipped by 33.2 percent quarter-over-quarter, transactions have been on the upswing since the third quarter of last year, according to Colliers. This suggests "growing buyer confidence," the CRE firm emphasized.
The other important takeaway — new supply is slowing. Deliveries totaled just 117,000 units compared with 780,800 in the year prior.
"The uptick in both tenant and investor activity hint that an inflection point [in] overall market conditions may be on the horizon," Colliers predicted.
The top purchase was made by Tourbineau Real Estate (TREP) in the second quarter, with its 205,107 square foot buy of a San Mateo property. It was bought at $107 per square foot.
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