By Robert Sammons, Senior Director, Northern California Research
Another quarter has come and gone. And the San Francisco commercial real estate market just powers on. The citywide vacancy rate is now just 5.5%, down 190 basis points year-over-year. Much of the space that is vacant is just scattered partial or single floors and not the big blocks (50,000 square feet and greater) that numerous tenants in the market are hunting for. If looking at all space that is available (that is everything being marketed currently whether vacant or not), that rate is just 6.3% or a total of 5.3 million square feet. We are tracking over 9.8 million square feet of tenants looking for space in San Francisco which makes for a bit of a math problem. Meanwhile, asking rents continue to climb higher with the citywide average up 9.4% year-over-year to $79.07 per square foot with the average for direct Class A space in the CBD approaching $90.00 per square foot. There are more stats for you in our just released “Six Quick Stats” for Q2 2019 along with an outlook of what’s to come courtesy of San Francisco power researchers Derek Daniels and Jason Karbelk. Expect much more on San Francisco and all of the markets Cushman & Wakefield tracks in the next couple of weeks as our MarketBeat reports are released.
Regarding big blocks of available space, there is some relief coming but it’s going to be a while unfortunately. One project, known as 5M, broke ground last week which will add around 640,000 square feet of office space to inventory in its first phase though it won’t be completed until late 2021. Another, Oceanwide Center, will be completed soon after with its 1.0 msf of office space. And 598 Brannan Street, which received its entitlements for 700,000 sf of office space a couple of weeks ago, will be completed at a date still undetermined thanks to various Central SoMa lawsuits. As mentioned before, there are two other sites (Mission Rock and Pier 70) that could move ahead more quickly yet a date to break ground has yet to be announced. Expect both 5M and Oceanwide to be preleased well before opening day.
Speaking of cost (see way up in paragraph one!) San Francisco isn’t the only major U.S. city with issues regarding cost of doing business or cost of living for that matter. New York City turned itself around in the 1990s and became a mecca for many wanting to relocate to THE big city (including yours truly). But Bloomberg reports that the party might be over. Some of the more recent issues there sound a bit like the dings San Francisco has been taking lately too. That brings up further problems regarding an overwhelmed transit system – both here and in New York City. The difference is that New York City has a tremendous amount of infrastructure in place, albeit much of it quite old at this point and in need of an overhaul, while San Francisco has a two-fold problem with a system that hasn’t been well maintained and that has never been fully developed. The mayor and other politicians are again planning to study the issue and make recommendations. Meanwhile, down in Silicon Valley Stanford wants to throw a whole lot of money at housing and transit though there is pushback by county officials.
All this leads us to the fact that some jobs are headed out of town. Not enough to totally freak the politicians out just yet (at least not publicly) but perhaps enough to lash out at the recipients of those positions (Texas and Tennessee to name two)—though it’s not that simply explained. There are a couple of stories down below offering more background on this topic – both from the San Francisco Business Times.
I know it sounds like the same theme from Newslines in weeks past but yet again there are more projects underway or planned in Silicon Valley. The grass certainly isn’t growing under those tech feet. There are several stories on Adobe and others plus more housing coming too all from The Mercury News within the Essential Real Estate News section.
And finally, next week I’m taking a break from Newsline. It’s a big Pride weekend upcoming. Take a look at some info from Cushman & Wakefield as well as our historical perspective for this year here if you like. Also, of course, next week is the Fourth of July and perhaps a good time to tune the Newsline out, eh?
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.