Peninsula Market Update, 3Q 2014

| October 14, 2014 | 0 Comments

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Our 3Q 2014 Market report and forecast for the SF Peninsula is available HERE.  My article on the Office market follows:

At the close of the third Quarter of 2014, leasing activity on the San Francisco Peninsula remains strong, spurring along dramatic rent increases and a wave of speculative development not seen in years.

The vacancy rate for the Greater Peninsula ended 3Q 2014 at 8.64%, a fairly substantial dip from last quarters rate of 9.39%, and the lowest level seen since the dot-com days. For San Mateo County, which is more heavily impacted by the slower North Peninsula submarkets, the quarter closed with a 10.74% rate, only a nominal improvement from last quarter’s 11.11% vacancy, but the 6th consecutive quarter where the rate has declined.

Also registering a milestone not seen since the dot-com days, the Average Asking Rate for office space in the region has surpassed $4.00 per square foot Fully Serviced. The Greater Peninsula’s $4.10 Fully Serviced average asking rate represents a 2.8% increase just over the past Quarter. Without the influence of the especially high rent Palo Alto and Mountain View submarkets, the average asking rate for San Mateo County checked in at a still record-breaking $3.80 PSF Fully Serviced.

The Gross Absorption (a measure of all leasing activity) statistics for the Third quarter quantified just how strong leasing activity has been over the last several months. The 1.72 million square feet of Gross Absorption recorded on the SF Peninsula in 3Q 2014 is the highest figure in three years. Not a part of this notable total is the 334,000± Box.net lease at the under-construction Crossings/900 development (new developments are not generally included in Colliers statistics until building completion)

While the headline grabbing Box.net development was the most significant new lease on the Peninsula of the year, other large transactions played a role in the very solid quarter. Machine Zone’s ±222,000 sf commitment to Sand Hill Property’s Page Mill Road project was the largest in Palo Alto since 2011, and accounted for a third of the decrease in vacancy for the quarter. Other noteworthy leases in the Third Quarter included Ring Central’s ±85,000 square foot lease in Belmont, Conviva’s 35,000 sf move to San Mateo, and Yelp’s commitment to the under-construction ±45,000 sf project at 2100 El Camino in Palo Alto.

Perhaps the most interesting trend at this current stage of the market cycle is the newfound interest in speculative building development. The above mentioned Crossings/900 project broke ground long before securing a tenant, and Wilson Meany recently announced plans to begin construction on their massive transit-oriented Bay Meadows project. Several other significant projects are expected to fill the queue as well.

A noteworthy feature of a current market snapshot is just how broad the strength is deployed across the region. Heavy vacancies are concentrated in just the most remote and challenging submarkets, and rent growth is seen consistently in virtually all submarkets. Combined with the near lack of volatile sublease inventory, the near term continued strength of the market seems certain.

 

The full report is available HERE

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