• San Francisco

Thought Leadership: San Francisco Q3 Office Statistics & Insights

By Derek Daniels
Senior Research Analyst
San Francisco

Unemployment at 3.3% & Another Wave of “Big Tech” Leasing
The unemployment rate for the San Francisco metropolitan division (San Francisco and San Mateo counties) was 3.3% in August. This percentage is unchanged from the 3.3% reported one year ago, as the market has reached full employment – translating to hiring challenges across the spectrum.

Total private sector jobs increased by +1.8% to 992,800, while office using positions were essentially flat year-over-year at 425,800.

The San Francisco office market is undergoing another wave of very strong leasing activity – this time around, not just start-ups, but established technology companies are absorbing large blocks of space.


Vacancy & Asking Rates
The Citywide overall vacancy rate closed the second quarter at 8.5%, an increase of +10 basis points (bps) from the second quarter and a +80 bps increase from one year ago.

The CBD saw direct Class A vacancy increase +40 bps to 7.7% in the third quarter. The North Financial District continues to carry the majority of vacancy in the CBD (9.1%) compared with the South Financial District (6.5%). This vacancy rate for the North Financial District remained unchanged compared to 2016; while the South Financial direct vacancy increased +80 bps.

Seventy Dollars Per Foot
The Citywide overall asking rent increased +$0.35 per square foot (psf) or +0.5% to $70.51 psf in the third quarter. The CBD Class A direct average asking rent decreased -$0.38 psf or +0.5% in the third quarter to $74.71 psf.

Construction, Development & Prop M
A total of 5.1 million square feet (msf) was under construction at the end of the third quarter with 1.8 msf of new construction scheduled to deliver in the fourth quarter of this year including Salesforce Tower and 350 Bush Street. At the close of the quarter, 1.1 msf (63.7%) of this inventory was pre-leased.

A number of large users are in negotiation for the remainder of this space and these buildings may very likely deliver at 100% occupancy. As of August 2017, a total of 1.2 msf remained in San Francisco’s Prop M large cap office allocation pool with an additional 875,000 sf to be added on October 17th for a total of 2.1 msf.


Two waterfront projects could put a serious dent in the remaining  Prop M cap, if and when they move forward. The San Francisco Giants just secured a round of approvals from the Planning Department that could tie-up 1.4 msf of the office allocation.

Additionally, Forest City’s Pier 70 mixed use project was awarded approval in August which could take down any remaining balance. Neither of these projects has to go through the Prop M approval process.

It is likely, however, that these sites will be built out over several years with office properties going forward in stages. Beyond these two megaprojects, there is another 3.8 msf in pending projects with 4.7 msf in the pre-application phase. All of this makes it very clear that San Francisco could easily be without any allocation left in 2018.

Tenants in the Market
With 5.5 msf of tenants in the market and with 16 of these tenants (most well financed big tech) looking for at least 100,000 sf, any remaining blocks are likely to be absorbed quickly. In fact, we count 15 blocks 100,000 sf or greater that are or will be available thru 2020 (in existing or under construction product).

Bidding Wars & Commodity Spaces

There is a real possibility that bidding wars for these spaces could lead to price spikes. Also worthy of note are the  substantial amount of smaller, so-called “commodity spaces” available in San Francisco for both start-up operations and non-tech companies.

Leasing Activity & Absorption: Welcome to SF, Facebook!
New leasing closed the third quarter at 1.8 msf of activity with the year to date figure totaling 5.6 msf. At the current pace, 2017 should be the most active year since 2014’s total of 9.8 msf.

By far, the largest transaction of the quarter was Facebook’s 423,000 sf at 181 Fremont Street. Facebook will occupy the entire office portion in the first half of 2018.

The second largest lease in the third quarter totaled 176,000 sf at 525 Market Street and was leased to a technology company. Additionally, Dropbox is pending to take the entire 680,000 sf at The Exchange in Mission Bay.

Overall net absorption (the net change in occupied space) was essentially flat in third quarter, totaling -55,894 sf due to a lack of large block move-ins.

Cushman & Wakefield measures absorption at the time of move-in and with several construction completions delivering in the fourth quarter and into early 2018, positive absorption will return quickly to San Francisco.

Investment Activity: Scarce Inventory
There is a scarcity of inventory for sale in San Francisco. There were only three Class A sales in Q3 and two were partial interest sales. Tishman Speyer bought out JP Morgan 80% share in 222 Second Street occupied by Linkedin.

Additionally, Allianz Global Real Estate purchased a 22.5% ownership in 333 Market Street as a part of a portfolio sale by Columbia Property Trust. Activity should remain low for the remainder of the year.

–  Continued office job growth throughout the remainder of 2017, though at a slower pace.

– Positive net absorption at year end as new construction delivers at or near fully leased.

–  Average asking rents will continue upward trend.

–  Demand fundamentals strong due to heavy in-bound demand from big tech.



Derek Daniels is a Senior Research Analyst with Cushman & Wakefield, based in San Francisco. He has more than a decade of experience in the Bay Area commercial real estate market in research, market analysis and brokerage.

Derek’s background also includes working as a Research Analyst covering the East Bay for commercial real estate company Colliers International and as an Associate Broker for NAI BT Commercial and Colliers, where he specialized in the lease and sale of office and industrial space.

As the San Francisco office market Research lead, Derek’s work focuses on publishing the quarterly Marketbeat, while working closely with local Cushman & Wakefield brokers  and the Regional Research Director to provide market expertise to clients and stakeholders in San Francisco. He is an avid social media participant, a frequent guest blogger and a thought leader in the City’s CRE niche.


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