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Bay Area Research Rant: More on San Francisco Plus Oakland and Silicon Valley Too!

By Robert Sammons, Regional Director – Northwest U.S. Research

San Francisco Panorama 3The Rant this week generally focuses on three key office markets in the Bay Area at the third quarter of 2016 – additional info on San Francisco (see last week’s Rant) plus a review of East Bay Oakland and Silicon Valley. If you’re pressed for time, follow the links provided which will take you to our global research landing page and those market reports. If you find yourself with a few minutes, however, read on. I promise I won’t go on too long. And don’t think I’m going to forget our other important NorCal markets – I’ll dive into those next week! But first this editorial from yours truly. This week, Salesforce Tower (eventually to be 1,070’ tall) officially moves ahead of the Transamerica Pyramid (853’) to become the tallest skyscraper in San Francisco. In practically any other city, through several economic expansions, “the Pyramid” would likely have been surpassed in height long ago seeing as it was completed in 1972. But this is San Francisco and development guidelines are onerous plus the City has quite a vocal citizenry when it comes to big and tall along with just about anything else (you’ve got to live here to believe it). In any case, with the redevelopment of a wide swath of territory south of Market Street and around Transbay Center, new skyscrapers– both office and residential – are sprouting (including Salesforce Tower). But the pointy building at 600 Montgomery in the North Financial submarket will always stand out – if nothing else but for the unusual (stunning) design which has become as much a part of San Francisco and its skyline as the Empire State Building has in New York City. There’s a terrific article in this past Sunday’s San Francisco Chronicle I highlight below along with another on tallest buildings on the west coast.

Now a moment regarding the San Francisco office report. As written about extensively in last week’s Rant, the office market was relatively flat but that is coming off years of record economic growth. That expansion was not sustainable and some cooling has not only been expected but should be welcomed so as not to push tenants out with minimal availability and ever-higher rents. I also mentioned the real concerns I have for this market. Please take a look at last week’s editorial along with the full report now available. As might be expected, the data was picked up by the press with spot on accuracy except possibly the headline in one publication which was rather dramatic. I’ve included the link below for full disclosure and I’ll let you tell me what you think if you like.

Across the Bay Bridge to Oakland, we find a market still in transition. The vacancy rate did climb in the third quarter due to a few rather large chunks of space hitting the market. Even so, Oakland, and particularly its CBD, remains space constrained and these new blocks should be good news for tenants searching for a transit-oriented home in the East Bay. Asking rents continued to rise and are at record levels though still substantially below those of its big brother to the west. And while I would stop short in calling Oakland the new Brooklyn (I am, after all, a former 19-year resident of NYC), it has transformed itself into a vibrant mixed-use transit-oriented community which “should” continue to blossom in the years ahead.

Down in Silicon Valley, the office market got back on track in the third quarter with a drop in the overall vacancy rate though sublease space was on the rise. Leasing activity had its best quarter of the year – particularly from well-known market players (Google and Facebook in yet further expansions). Let’s not forget the auto industry, which has become a more significant player in Silicon Valley than I imagine anyone would’ve thought just a few years ago, with Ford expanding in a big way this quarter. Meanwhile, the overall average asking rent surpassed its previous record set fifteen years ago, closing well above the $4.00 per square foot (per month) mark. And construction activity, at 5.3 million-square-feet (MSF), has much more in common with San Francisco (3.8 MSF) than East Bay Oakland (270,000 square feet). With new products constantly being developed (AI, robotics, self-driving cars, etc.) the only things stopping Silicon Valley will be traffic and the cost of living (the primary issues across the Bay Area).

Enjoy the reports. I’ll be back next week with details on the Peninsula, Walnut Creek, North Bay and Sacramento markets.

This post is guest commentary from the latest weekly edition of our Bay Area Research Rant, which you can subscribe to for free by e-mailing robert.sammons@cushwake.com.

Robert_SammonsRobert Sammons is a Research Director for Cushman & Wakefield. Based in San Francisco, Robert’s principal roles include working closely with the C&W research teams across the Northwest – including Northern California, Portland and Denver. Robert is author of numerous documents that delve into a wide variety of real estate and economic trends. He has been a quoted source for all manner of real estate and related economic information in many widely known media outlets across the country. Robert has 29 years of real estate experience as both an appraiser and researcher. He earned a BBA in Real Estate from The University of Georgia and an MS in Real Estate from Georgia State University. Robert is a member of the Urban Land Institute.

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