2019-07-12_DTZ戴德梁行_Office_Q2_2019_San_Francisco_4页_1mb

San Francisco Office Market Q2 2019 Summary

Core Content Overview

The San Francisco office market in Q2 2019 showed strong performance, driven by low unemployment, robust demand, and rising rents. The market experienced a significant decrease in vacancy rates and a notable increase in asking rents, particularly in prime areas. Despite a reduction in new leasing activity compared to the previous quarter, demand for office space remained high, especially for large blocks.

Key Economic Indicators

• The unemployment rate in the San Francisco metro area dropped to 1.8%, the lowest since at least 1990, with a 5.4% year-over-year (YOY) increase in office-using positions.
• Total private sector jobs increased by 4.3% to 1.049 million.

Market Indicators

• Overall vacancy fell to 5.5%, down 30 basis points (bps) from Q1 2019 and 190 bps from the same period in 2018.
• Citywide new leasing totaled 1.7 million square feet (msf), a 36% decrease from the previous quarter.
• Average asking rent increased to $79.07 psf, with the CBD Class A direct asking rent reaching a record $86.12 psf.
• The South Financial District saw a 17.9% increase in Class A direct rents to $90.02 psf.

Construction & Development Activity

• Under construction totaled 2.4 million square feet (sf) at the end of Q2 2019, all scheduled to deliver between Q4 2019 and 2023.
• Pre-leasing was completed for all projects delivering within the next 24 months.
• The Oceanwide Center in the South Financial District is the only major development with available space (1,050,000 sf).
• The Central SoMa District became more active with the approval of 598 Brannan Street (700,000 sf) and the first-quarter lease at 88 Bluxome Street to Pinterest (480,000 sf). However, pending lawsuits have created uncertainty for future developments.

Leasing Activity & Absorption

• New leasing totaled 1.7 msf in Q2 2019.
• Four new leases were signed for more than 100,000 sf, with three to tech firms and one to a financial services firm.
• First Republic Bank leased 195,000 sf at One Front Street, expanding its headquarters footprint to nearly 800,000 sf.
• Autodesk and Glassdoor both relocated to 50 Beale Street, indicating strong tenant activity.
• Net absorption for the citywide market was 86,285 sf, with SOMA experiencing a negative net absorption of 34,715 sf.

Investment Activity

• Total investment activity in the first two quarters of 2019 reached $1.29 billion and $1.43 billion, surpassing the $2.53 billion total for the entire 2018 year.
• Six transactions closed citywide, with an average price of $921 psf and 1.5 million sf of building area.
• Zynga sold its headquarters at 650 Townsend Street to Beacon Capital Partners for $893 psf.
• JUUL acquired 123 Mission Street for $1,147 psf, highlighting strong buyer demand.

Outlook

• Pre-leasing at proposed sites like 5M, Mission Rock, and Pier 70 is expected to continue.
• Additional rent increases are anticipated, especially for prime Class A space.
• The IPO market will remain active, with more San Francisco-based companies planning to go public.

Office Class Breakdown

• The gap between Class A and Class B/C asking rents is significant, with Class A rents at $82.97 psf versus $70.94 psf for Class B and $70.77 psf for Class C.
• Class A vacancy is the lowest at 5.9%, while Class C has the highest at 3.3%.

Key Lease Transactions Q2 2019

Key Sale Transactions Q2 2019

Summary of Key Points

• Strong demand for office space, particularly for large blocks, continues to drive the market.
• Rents are rising, especially in the CBD and South Financial District.
• Vacancy rates are declining, with the citywide rate at 5.5%.
• Investment activity is robust, with transactions exceeding the previous year's total.
• Construction is ongoing, with most projects set to deliver in the next few years.
• Uncertainty remains in the Central SoMa District due to pending lawsuits.