Fresh quarterly stats

| October 2, 2009 | 0 Comments

I’ve spent a good deal of time already pouring over our just-released quarterly market data (I’m working on the narrative for our Peninsula Regional Market report, and am always pleased to see numbers that support what I’d already been writing…).  

 For San Mateo County, vacancy remained flat from 2Q to 3Q, and remains at 19.9%.   For the whole Peninsula (including N. Santa Clara County), there was a modest .4% increase up to 18.8%.   Virtually all of the increase came from additional sublease inventory (though sublease space remains an untroubling 25-30% of the overall market).  Net absorption is still running at a negative (about 200,000 sf worth), but not nearly as big a hit as the past few quarters. 

 I usually dont put much stock in trends for various micro-markets, but there are a few that I do track with interest- the canaries in the coal mine that is the local market.  This quarter, Redwood Shores clocked very modest positive net absorption.  I think that we might see the same at least for Class A space (essentially downtown and 1-2 other projects) in Mtn View as well.  What interests me about these markets in particular is that they consist of higher-end space, and are largely driven by smaller (5000 sf and under) users.  The small user market has been just as quiet as the rest of the world so far this year, but it seems that there may be a least some change afoot here.

 (On a related note, pretty much all of the negative net absorption this quarter can be accounted for by a few chunks of sublease space, including some in the Stanford Research Park that could– maybe should– be accounted for in R&D stats)

 Rents:  SM County average asking office rents have inched down inconsequentially this year, which may surprise a bit at first glance, but makes sense to me.  Back to Redwood Shores– the dribble of activity that I allude to above has been coupled with a ±7% drop in asking rents this quarter– the only submarket in the County with what I would consider a statistically significant movement.   Asking rates move down based on deal flow (though they will move up speculatively– its easier to wish for an outcome than to accept one, I suppose).   I expect a hefty dip in asking rates in Palo Alto and Mtn View when I see those numbers, too. 

 I’m certainly not about to declare a bottom to this real estate cycle, but there really are some good nuggets here.  In my various market reports that I wrote back in 2003, I noted the growing dichotomy between the market for smaller office space in core locations and the broader office/R&D market.  I speculated then that this was an early sign of a stabilizing market, but that the broader recovery would trail by a significant margin.  I think thats a pretty safe prediction for this round, too.  2010 will, I think, see some limited upward movement in rents in submarkets that are dominated by small tenants.   At very least, expect to see stronger activity and perhaps even a scarcity of smaller suites in some markets.

 The R&D market remains a different story.  More later..

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