By Robert Sammons, Senior Director, Northern California Research
Build it and they will come. That could be the tag line for San Francisco’s office market during this entire extended cycle and more so than ever over this first six months of 2018. Essentially every new building that has delivered this year has been 100 percent leased before receiving its certificate of occupancy (okay so the five new buildings with 3.1 million square feet of inventory have technically delivered this year at 98 percent occupancy – sue me – I was rounding up). We expect three more buildings to be completed before the year is done – 510 Townsend Street (Stripe), 100 Hooper Street (Adobe) and 250 Howard Street (Facebook) with all office space leased. Then San Francisco goes rather quiet regarding new construction except for the 2019 and 2020 deliveries of the pre-leased buildings for and by Uber in Mission Bay. After that, it’s going to be 2022 at the earliest before we see our inventory rise again. That’s not to say there aren’t a few big blocks floating around – we’re counting 10 spots with at least 150,000 square feet of contiguous space being “marketed” but that does count space not technically available for move-in until the early 2020s. So what’s a San Francisco tenant to do when it is looking for an urban environment to keep its millennial workforce (and other ages too) happy? Well Oakland is just a 15 minute BART ride away with a few blocks of space available over the next 2-3 years including 370,000 square feet at 601 City Center delivering next year and 350,000 square feet at 1955 Broadway (Uptown Station) ready later this year. And the San Francisco market could prove a little more fluid that it has been with a block here or there opening up – so keep your eyes peeled.
As has been stated numerous times in the Newsline, cost of living and inadequate mass transit are our twin burdens. You can now add lack of office development to that list. There is a potential tweak underway regarding Prop M that could boost the allocation available from 2.0 MSF now to 3.6 MSF by transferring what was lost due residential and hotel conversions since Prop M became the law of the land. That said, it will still be the early to mid-2020s before buildings could be up and open including those in the yet to be rezoned Central SoMa area. If you’re not aware – an entire swath of the city is to be upzoned for mid and high-rise office and residential complete with access via the new “Central Subway” which is actually only partly below ground. In any case, you can read more on the potential changes to Prop M.
We continue to explore where the additional workers from these expanding “big tech” firms are coming from as inbound migration has slowed though office positions do continue to expand. As one person within one of those growing firms relayed to me “it’s one word – poaching.” Now of course it’s more than that but it is absolutely a piece of the puzzle. And we’re speaking of very well-paying positions for the tech jobs. What’s someone to do that lives in the Bay Area and works in the myriad other positions not paying anywhere near six figures? Well The New York Times took a look, specifically at restaurant workers here, and it’s not a pretty picture. See that story below as well.
That very long introduction was to clue you in that our second quarter 2018 statistics are here. We’ve linked up a sweet infographic here for you with a lot of the highlights of the office market. Our full San Francisco MarketBeat report will be out shortly along with all of our reports on the entire Bay Area including the office, industrial and retail sectors.
This post is commentary from the latest weekly edition of our NorCal Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
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.