Report: Future of Office Market Cloudy

SAN FRANCISCO-The latest statistics from Insignia/ESG-San Francisco reveal that, while the city’s commercial real estate market shows no signs of immediate improvement, it is not likely that things will get worse either.

The commercial real estate firm’s third quarter data reveals continued excess sublease space, decreasing rental rates and historically high vacancy rates. Unprecedented stock-market gyrations, weakening consumer confidence and the continued threat of war have accentuated local-market volatility and squelched hopes of a near-term recovery. Then again, there were hints of stability in the third quarter, according to the report.

“This is a market of mixed signals,” says Mark Bodie, Research Services manager for Insignia/ESG’s San Francisco office.

The city’s available inventory remained high yet showed signs of stability, at 20.18% from 20.17% compared to the second quarter. The sublease stock dropped for the second straight quarter, as tenants either reabsorbed space or their leases expired. In addition, leasing activity actually improved, resulting in a decreasing net absorption figure of negative 167,000-sf, much less than the negative 241,000-sf seen mid-year.

According to Insignia, San Francisco’s Central Business District is the worst submarket, with 136,000-sf of negative net absorption and average asking rents at $30.20. The North of Market submarket was the only spot in the city to experience positive net absorption for the quarter. The area, which includes the Civic Center, Union Square and Van Ness Corridor, has remained relatively healthy compared to its neighbors. Availability in the North of Market area has remained in the single-digits and decreased this quarter to a market-leading 8.7%.

Insignia says that several large transactions were seen in the third quarter, including Gensler’s 57,000-sf relocation to Hills Plaza; CNA Insurance’s 54,000-sf anchor lease at 405 Howard St.; and Paymap’s 50,000-sf relocation to 100 North Point.