By Robert Sammons, Senior Director, Northern California Research
The amount of vacant sublease space on the market at any given time is an important metric to track for any market and during any economic cycle. The Bay Area is no exception. During the current expansion, logic would have it that sublease space should be minimal with most firms in rapid growth mode; but with the numerous tech start-ups along with big tech firms active across the Bay Area, there has been at times a rise of sublease space in San Francisco as start-ups wobbled plus another rise in both San Mateo and Santa Clara counties from larger mature tech companies due to both M&A activity as well as, simply, a decline in business.
Currently, San Francisco has reversed course with sublease vacancy cut almost in half from just two years ago as start-ups regained control and began to grow at a slower pace while big tech moved in and took down some of the larger blocks. The counties of San Mateo and Santa Clara have recorded a more recent run-up of sublease vacancy due to the aforementioned mature company issues; but that space (generally longer-term lease potential) has been garnering a lot of interest from those firms still booming (both tech and life sciences in San Mateo County and tech in Santa Clara County).
At the height of the “great recession”, sublease vacancy across the Bay Area climbed to 5.6 million square feet (msf), but as the economy recovered that figure fell to 2.6 msf in 2014. However, it did spike again in 2016 (due, in large part, to struggles among tech start-ups in San Francisco) to 5.0 msf. At the close of the first quarter of 2018, sublease vacancy stood at 5.6 msf (with much of this in San Mateo and Santa Clara counties). In fact, the office markets in the counties of San Francisco, San Mateo, and Santa Clara make up nearly 80% of the Bay Area’s sublease vacancy. With economic growth continuing, with minimal new construction across the region and with direct vacancy falling, we feel that quality sublease space across the region will also likely see a decline over the next year.
Follow along through our statistical run-down on sublease vacancy across the various Bay Area markets by clicking here.
This post is commentary from the latest weekly edition of our NorCal Newsline, which you can subscribe to for free by e-mailing email@example.com.
Robert Sammons is Cushman & Wakefield’s Senior Director, Northern California Research. 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.