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After several quarters of expansion, San Francisco's office market flattened last quarter, data from Cushman & Wakefield shows. Overall asking rent was $69/SF, representing the first quarterly decrease since Q2 2010. Overall vacancy came in at 7.7%, up 40 basis points from Q2 and the first consecutive increase since Q2 2009.
Last quarter’s leasing activity of 875k SF was the lowest third-quarter activity since 2001. Overall net absorption was 185k SF due to one renovated building delivering at 100% occupancy. Sublease vacancy increased to 1.51M SF from 1.48M SF.
Cushman & Wakefield regional director, Northwest US research Robert Sammons says not to press the panic button, especially since San Francisco remains “a relatively healthy market by many metrics and compared to most other US markets.”
Strong tenant demand persists and several transactions are expected to close this quarter, including a new healthcare tenant and expanding tech firms. Investor interest remains strong with increased interest from global investors. 3.8M SF is under construction, with 31% pre-leased.
Cushman & Wakefield managing principal of San Francisco JD Lumpkin says the market is adjusting to a “new normal,” especially since double-digit annual rent increases were not sustainable.
“Good companies continue to choose to grow and locate in San Francisco, even as rents stabilize near record highs,” JD says.
For more on office trends, join us for Bisnow's Office Leasing & Development Series West on Nov. 2.
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