The document summarizes the Q4 2014 office market report for San Francisco. Key points include:
- The vacancy rate remained flat at 7.5% due to new construction, though it has decreased 51% since 2010.
- Leasing activity was strong with 1.5 million sq ft leased in Q4 and a total of 8.1 million sq ft for the year, exceeding the annual average.
- The market posted its 18th consecutive quarter of positive absorption, with over 257,000 sq ft absorbed in Q4 and over 2.8 million sq ft for the year.
- Average rents increased to $64.79 per sq ft, a 16.2% increase over the previous
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Q4 2014 San Francisco Office Report
1. Q42014SAN FRANCISCO OFFICE MARKET REPORTAccelerating success.
> VACANCY Due to new construction hitting the
market, the vacancy rate remained flat this quarter
at 7.5 percent. Vacancy has decreased for four
straight years, that’s a 51 percent shrinkage since
the most recent peak of 15.2 percent in 2010.
> LEASING VOLUME Reflecting strong local
employment trends, leasing activity continued to
be strong with approximately 1.5 million square
feet of transactions during the fourth quarter and
annually hit 8.1 million square feet far exceeded
the city’s historical annual average of 7 million
square feet of transactions
> ABSORPTION The San Francisco office market
posted its eighteenth consecutive quarter of
positive net absorption with over 257,000 square
feet posted during the fourth quarter. Year-to-
date the market has experienced over 2.8 million
square feet of growth.
> RENTS Reflecting strong local employment
trends, leasing activity continued to be strong
during the fourth quarter pushing rents higher.
Average rental rates citywide rose this quarter
to reach $64.79 per square foot (weighted) for
all asset classes. This represents a 16.2 percent
increase from this time last year.
“The City is now the undisputed
urban epicenter of the world’s
knowledge-based economy”
-Alan D. Collenette, Executive Managing Director
Market Indicators
Vacancy
Q4 2014 2015
Net Absorption
Construction
Weighted Rental Rate
Non-Weighted Rental Rate
Sales Volume
Sales Prices
ELL ST
BAY ST
BRYAN
T
ST
H
ARRISO
N
ST
4TH
ST
GEARY ST
GOUGHST
VANNESSAVE
EM
BARCADERO
9TH
ST
CO
LUM
BUS
AVE
RD ST
1ST
ST
KEARNYST
CESAR CHAVEZ ST
3RDST
KIN
G
ST
8TH
ST7TH
ST
MISSIONST
16TH ST
Uber takes 76,000 SF at 685
Market Street, set to occupy
January 2015
New 137,000 SF six-story 4th
& Brannan Office Development
“501-505 Brannan” Approved
UCSF “highly
interested” in
proposed Warriors
office buildings
Uber and Alexandria
Real Estate Equities
purchase two fully
entitled parcels next
to the Warriors arena
site in Mission Bay
1019 Market Street,
home to Zendesk,
was sold at $639/
SF - another
benchmark price for
a historic/creative
office building
2. 4Q '14
Overall
4Q '14
Direct
4Q '14
Sublease
3Q '14
Overall
QoQ %
Change
All Markets: Class A $67.91 $68.47 $58.90 $66.21 2.6%
All Markets: Class B $57.53 $59.60 $41.00 $58.31 -1.3%
Financial District: Class A $72.44 $72.44 - $66.52 8.9%
Financial District: Class B $56.67 $59.33 $39.97 $48.97 15.7%
SOMA Overall $65.61 $66.38 $61.89 $66.46 -1.3%
RENTAL RATES
Weighted average rents for the
Financial District assets reflected
a 6.8 percent increase for the
quarter to $69.11 per square foot
and annualized rents climbed up
18.5 percent. Overall weighted
annualized rents in the SOMA
market surged up 37.2 percent to
$65.61 per square foot this year.
Weighted Class B rents softened
slightly this quarter, decreasing
by 1.3 percent to $57.53 per
square foot, annually they are up
20.4 percent.
ABSORPTION & VACANCY
The South Financial District
and Potrero East submarkets
experienced the largest
occupancy growth realizing
148,453 and 99,930 square
feet of positive absorption,
respectively. DocuSign,
SocialChorus, and Sift Science
collectively moved into nearly
42,000 square feet of sublease
space at 123 Mission Street. A
couple of key contributors to the
positive net absorption in Potrero
East were Invuity moving into
over 38,000 square feet at 444
De Haro Street as well as Dot &
Bo occupying over 21,000 square
feet at 200 Kansas Street.
INVESTMENT VOLUME
Demand for assets in the
San Francisco market from
both domestic and foreign
capital sources continued to
be voracious during the fourth
quarter. There were a total of 14
office transactions closed this
quarter for a combined value
of nearly $1.9 billion. This year
there were 50 office sales closed
for a total of over $5 billion. In
comparison, 2013 experienced
45 office sales closed for a total
value of $2.38 billion.
0.0%
5.0%
10.0%
15.0%
20.0%
-800,000
-300,000
200,000
700,000
1,200,000
1,700,000
2Q'05
3Q'05
4Q'05
1Q'06
2Q'06
3Q'06
4Q'06
1Q'07
2Q'07
3Q'07
4Q'07
1Q'08
2Q'08
3Q'08
4Q'08
1Q'09
2Q'09
3Q'09
4Q'09
1Q'10
2Q'10
3Q'10
4Q'10
1Q'11
2Q'11
3Q'11
4Q'11
1Q'12
2Q'12
3Q'12
4Q'12
1Q'13
2Q'13
3Q'13
4Q'13
1Q'14
2Q'14
3Q'14
4Q'14
Vacancy Net Absorption
P.2 | RESEARCH & FORECAST REPORT
Note: Weighted Average Rents
Source: Colliers International
Source: Colliers International
18
Straight
Quarters
of Positive
Absorption and
Declining
Vacancy
$1.9
$0.4
$0.1 $0.3
$0.5
$1.8
$3.5
$3.2
$9.8
$0.7
$0.3
$1.5
$2.8
$6.0
$2.4
$5.0
32
14
10
17
25
57
38
68
18
8
17
53
68
45
50
$-
$1.0
$2.0
$3.0
$4.0
$5.0
$6.0
$7.0
$8.0
$9.0
$10.0
0
10
20
30
40
50
60
70
80
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
San Francisco Sales Activity (Billions) # Transactions
2014 Sales
Volume 64%
Higher than Peak
of Dot Com Boom,
2000
3. TENANT DEMAND
Tenant demand remains strong for space in
San Francisco with over 5.4 million square
feet of office space requirements involving
137 tenants in the market and fourteen of
those tenant requirements are looking for over
100,000 square feet. The core of this demand
is driven from technology tenant requirements,
which account for 36 percent or 1.9 million
square feet of the requirement in the market.
Q4 2014 | OFFICE | SAN FRANCISCO | P.3
UPDATE - LEASE AND INVESTMENT TRANSACTIONS
SIGNIFICANT LEASES Q4 2014
ADDRESS TENANT SIZE TYPE SIGNED DATE CLASS
555 California Street Kirkland & Ellis 125,000 Renewal/Expansion Oct-14 A
651 Brannan Street Pinterest 120,113 New Oct-14 B
55 Hawthorne Street Yelp 102,324 New Oct-14 A
535 Mission Street WeWork 91,000 New Dec-14 A
201 Third Street Capital One 88,353 New Nov-14 A
685 Market Street Uber 77,644 New Oct-14 B
101 California Street Deutsche Bank 51,322 Renewal/Downsize Oct-14 A
SIGNIFICANT SALES Q4 2014
ADDRESS SELLER BUYER SQ. FT. SALE DATE CLASS SALE PRICE
PRICE/SF
or FAR
50 Beale Street The Rockefeller Group/Mitsubishi The Paramount Group 663,441 Sep-14 A $395,000,000 $595
Foundry Square II - 405 Howard Street GE Capital/Langley Investments TIAA-CREF/Norges Bank 521,555 Sep-14 A $390,000,000 $748
650 California Street PREI/Tishman Speyer Columbia Property Trust 492,132 Sep-14 A $309,000,000 $628
600 California Street Clarion Partners/OregonSTRS Bentall Kennedy 358,590 Nov-14 A $216,500,000 $604
100 California Street ECP/PCCP/Broadway Partners Pembroke Real Estate 288,619 Sep-14 A $182,250,000 $631
201 California Street ARES/USAA Cornerstone Advisors 239,342 Oct-14 A $130,000,000 $543
235 Pine Street TA Associates Realty CBRE Investors 150,159 Sep-14 A $88,800,000 $591
300 California Street Kennedy Wilson The LeFrak Organization 120,566 Sep-14 B $58,250,000 $483
1019-1021 Market Street
Cannae Partners/Westport
Capital
Deutsche Asset & Wealth
Management
75,523 Oct-14 B $48,250,000 $639
Source: Colliers International
Other
32%
FIRE
13%
Tech Related
36%
Business Services
19%
If all of these stated tenant
requirements were fulfilled,
this would equate to net
absorption of approximately
2.0 million square feet.
4. Accelerating success.
www.colliers.com
DEVELOPMENT PIPELINE Only 535 Mission Street completed construction this quarter adding an additional 307,235
square feet to the market. Year-to-date 1,557,396 square feet of new and renovated completed space was added to the
market. Currently there’s 5.2 million square feet under construction and approximately 64 percent or 3.3 million square
feet is pre-leased. Currently there’s another 12.6 million square feet either proposed or in various stages of planning.
LEASING ACTIVITY The San Francisco market has experienced fourteen leases over 100,000 square feet in 2014 with
three of those signed during the fourth quarter. Kirkland & Ellis renewed and expanded for 125,000 square feet at 555
California Street, Pinterest leased over 120,000 square feet at 651 Brannan Street and Yelp is taking 102,113 square feet
at 55 Hawthorne Street. This eclipsed the thirteen leases over 100,000 square feet closed in 2012.
DOWNTOWN MARKET:
A 177 57,806,721 4,542,921 7.9% 276,001 0.5% 4,818,922 52,987,799 8.3% 7.9% 14,821 1,972,195 307,235 1,483,261 4,510,750 12,502,808
B 296 24,901,722 1,471,556 5.9% 127,401 0.5% 1,598,957 23,302,765 6.4% 7.4% 234,359 740,053 - 74,135 651,149 140,235
C 133 6,871,862 284,428 4.1% 7,906 0.1% 292,334 6,579,528 4.3% 4.4% 8,263 88,021 - - - -
Total 606 89,580,305 6,298,905 7.0% 411,308 0.5% 6,710,213 82,870,092 7.5% 7.5% 257,443 2,800,269 307,235 1,557,396 5,161,899 12,643,043
FINANCIAL DISTRICT:
A 106 43,448,284 3,366,137 7.7% 190,785 0.4% 3,556,922 39,891,362 8.2% 7.7% 66,483 556,935 307,235 599,647 3,054,958 1,935,000
B 73 8,145,794 504,928 6.2% 47,169 0.6% 552,097 7,593,697 6.8% 7.2% 34,936 153,180 - - - 60,000
C 36 1,640,936 120,878 7.4% 1,400 0.1% 122,278 1,518,658 7.5% 6.6% 1,400 (1,400) - - -
Total 215 53,235,014 3,991,943 7.5% 239,354 0.4% 4,231,297 49,003,717 7.9% 7.6% 86,774 696,509 307,235 599,647 3,054,958 1,995,000
SUBMARKETS:
North Financial 116 28,405,524 2,137,679 7.5% 160,053 0.6% 2,297,732 26,107,792 8.1% 7.9% (61,679) 5,892 - - 2,682,958 60,000
South Financial 99 24,829,490 1,854,264 7.5% 79,301 0.3% 1,933,565 22,895,925 7.8% 7.2% 148,453 690,617 307,235 599,647 372,000 1,935,000
Total 215 53,235,014 3,991,943 7.5% 239,354 0.4% 4,231,297 49,003,717 7.9% 7.6% 86,774 696,509 307,235 599,647 3,054,958 1,995,000
Union Square 60 4,150,158 157,375 3.8% 16,284 0.4% 173,659 3,976,499 4.2% 3.5% (26,585) 71,356 - - - -
Yerba Buena 33 4,769,373 267,853 5.6% 28,236 0.6% 296,089 4,473,284 6.2% 6.1% (4,577) 872,613 - 883,614 253,000 1,045,000
SOMA West 41 3,468,914 155,310 4.5% 29,343 0.8% 184,653 3,284,261 5.3% 5.6% 9,770 50,174 - - 55,000 1,865,456
SOMA East 57 5,273,935 294,749 5.6% 55,633 1.1% 350,382 4,923,553 6.6% 5.1% (81,097) 93,096 - 74,135 1,131,433 80,235
Civic Center/Mid-Market 47 6,866,279 962,310 14.0% 3,225 0.0% 965,535 5,900,744 14.1% 15.1% 71,797 390,704 - - 270,000 -
Jackson Square 41 2,366,930 117,916 5.0% 2,467 0.1% 120,383 2,246,547 5.1% 7.4% 54,308 30,586 - - - -
North Waterfront 48 3,664,375 184,495 5.0% 24,787 0.7% 209,282 3,455,093 5.7% 6.4% 24,235 33,191 - - - -
Van Ness Corridor 21 1,233,094 84,438 6.8% - 0.0% 84,438 1,148,656 6.8% 5.5% (16,314) (1,526) - - - -
Potrero West 18 1,339,348 29,234 2.2% - 0.0% 29,234 1,310,114 2.2% 4.2% 27,370 7,846 - - - -
Potrero East 11 864,650 41,173 4.8% 11,979 1.4% 53,152 811,498 6.1% 17.6% 99,390 158,132 - - - 400,000
Mission Bay 14 2,348,235 12,109 0.5% - 0.0% 12,109 2,336,126 0.5% 1.0% 12,372 397,588 - - 397,508 7,257,352
Total 606 89,580,305 6,298,905 7.0% 411,308 0.5% 6,710,213 82,870,092 7.5% 7.5% 257,443 2,800,269 307,235 1,557,396 5,161,899 12,643,043
QUARTERLY COMPARISON AND TOTALS
Q3-14 606 89,303,236 5,997,997 6.7% 662,424 0.7% 6,660,421 82,642,815 7.5% 8.3% 781,565 2,554,546 55,756 1,250,161 4,965,035 13,070,043
Q2-14 605 89,213,545 6,771,446 7.6% 614,784 0.7% 7,386,230 81,827,315 8.3% 9.4% 1,442,981 1,772,981 425,993 1,194,405 4,990,366 11,119,347
Q1-14 603 88,787,552 7,959,561 9.0% 428,019 0.5% 8,387,580 80,399,972 9.4% 9.0% 345,638 345,638 768,412 768,412 5,381,410 10,527,063
Q4-13 603 88,119,140 7,589,242 8.6% 355,948 0.4% 7,945,190 80,173,950 9.0% 9.0% 666,833 2,143,390 - 681,982 4,166,889 11,594,808
Q3-13 603 88,119,140 8,290,559 9.4% 323,897 0.4% 8,614,456 79,504,684 9.8% 9.8% 395,484 1,474,124 281,982 681,982 4,155,920 11,559,180
Class
#ofBuildings
TotalInventory
(squarefeet)
DirectVacant
(squarefeet)
Direct
VacancyRate
SubleaseVacant
(squarefeet)
Sublease
VacancyRate
TotalVacant
(squarefeet)
OccupiedSpace
(squarefeet)
VacancyRate
CurrentPeriod
VacancyRate
PriorPeriod
CurrentNet
Absorption
YTDNet
Absorption
NetNewSupply
Current
(squarefeet)
NetNewSupply
YTD
Under
Construction
(squarefeet)
Proposed
(squarefeet)
Existing Properties Absorption
New
Supply
U/C &
Proposed
Alan D. Collenette, MRICS
Executive Regional Managing Director
50 California Street, 19th Floor
San Francisco, CA 94111
tel +1 415 288 7850
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