Downtown
By Erin M. Proto
Executive Summary
Observers have been watching intently to see how the San Francisco office market will be affected by the national economic slowdown. Overall the market has maintained sound fundamentals, but moderate softening is expected to continue into the second half of 2008. Net absorption was positive for the 20th consecutive quarter and reached nearly 500,000 square feet for the first half of 2008. Overall asking rents seem to have hit a plateau, remaining virtually flat for the past two quarters. Despite the lack of rent growth during the first half of the year, asking rents are up 4.6 percent for Class A space and 2.2 percent for Class B from a year ago. They currently stand at $48.39 per square foot and $32.89 per square foot for Class A and Class B space, respectively.
Three new buildings hit the market this quarter. The first, a 335,000-square-foot building, came on the market completely pre-leased, while the other two, totaling 455,000 square feet, were delivered with no pre-leased space. These new deliveries helped nudge citywide vacancy up this quarter by 30 basis points to 11 percent. Although the vacancy rate inched up this quarter, it’s still down nearly a percentage point from this time last year.
Record high sale prices and activity achieved throughout 2007 demonstrated San Francisco’s status as a premier investment market and raised the expectations of landlords. As financing has become more challenging to obtain in 2008, activity has waned. Sellers have been hesitant to lower asking prices or accept an offer below asking price in order to close a deal, which has slowed San Francisco’s investment market. Few investment properties will trade quickly until the pricing gap between buyers and sellers narrows. Even with the market’s recent signs of a slowdown, San Francisco’s future is positive based on the city’s status as the world’s technology hub, principal banking and financial center of the West Coast and prominent global gateway.
Erin M. Proto is a Client Services Manager with Grubb & Ellis
San Francisco and East Bay. For questions regarding this article, or to discuss the market, Erin Proto may be reached at
erin.proto@grubb-ellis.com or 415.433.1050
Downtown
Executive Summary
Observers have been watching intently to see how the San Francisco office market will be affected by the national economic slowdown. Overall the market has maintained sound fundamentals, but moderate softening is expected to continue into the second half of 2008. Net absorption was positive for the 20th consecutive quarter and reached nearly 500,000 square feet for the first half of 2008. Overall asking rents seem to have hit a plateau, remaining virtually flat for the past two quarters. Despite the lack of rent growth during the first half of the year, asking rents are up 4.6 percent for Class A space and 2.2 percent for Class B from a year ago. They currently stand at $48.39 per square foot and $32.89 per square foot for Class A and Class B space, respectively.
Three new buildings hit the market this quarter. The first, a 335,000-square-foot building, came on the market completely pre-leased, while the other two, totaling 455,000 square feet, were delivered with no pre-leased space. These new deliveries helped nudge citywide vacancy up this quarter by 30 basis points to 11 percent. Although the vacancy rate inched up this quarter, it’s still down nearly a percentage point from this time last year.
Record high sale prices and activity achieved throughout 2007 demonstrated San Francisco’s status as a premier investment market and raised the expectations of landlords. As financing has become more challenging to obtain in 2008, activity has waned. Sellers have been hesitant to lower asking prices or accept an offer below asking price in order to close a deal, which has slowed San Francisco’s investment market. Few investment properties will trade quickly until the pricing gap between buyers and sellers narrows. Even with the market’s recent signs of a slowdown, San Francisco’s future is positive based on the city’s status as the world’s technology hub, principal banking and financial center of the West Coast and prominent global gateway.
Erin M. Proto is a Client Services Manager with Grubb & Ellis
San Francisco and East Bay. For questions regarding this article, or to discuss the market, Erin Proto may be reached at
erin.proto@grubb-ellis.com or 415.433.1050