S.F.’s 2021 Office Pipeline Gets A Boost From Last Year’s Delays
Following 2020, a year when S.F. experienced a dearth of office deliveries due to the coronavirus pandemic, the city has a relatively robust 2021 office pipeline as about 2.6M SF worth of office deliveries were shifted from last year to this year, according to a Q1 2021 report from CBRE, which stated that 4.7M SF of office is currently under construction.
Initially the pandemic caused work to halt on some projects due to concerns about spread of the virus on construction sites, while more pervasive delays resulted from rising costs of materials and labor. A Q4 2020 report from Colliers International noted that just over 1.1M SF of office was added in S.F. in 2020 — 78% was pre-leased, and only one project added 244K SF in Q4.
The Colliers report also indicated that S.F. has almost 8.6M SF of proposed or pending development in the pipeline, not necessarily timed for 2021 delivery. With the percentage of vaccinated Californians rising, the outlook for construction activities should be improved over last year, though costs remain high.
So far in Q1 2021, two office buildings were completed in S.F. — 300 Grant Ave. in Union Square and Uber’s new Mission Bay headquarters, adding 357K SF to the supply, according to CBRE. A Q1 2021 report from Kidder Mathews stated that 116K SF was also added in Q1 following the completion of 420 Taylor St. that was 100% pre-leased to Nextdoor.
Anticipated deliveries this year include the 415 Natoma project, part of the 5M development plan, to add 640K SF of Class-A office to the Yerba Buena submarket, according to Kidder Mathews.
Although there are some early signs of improvement that could materialize later this year, the city’s office market is still struggling with Q1 vacancy at 19.7%, and a negative net absorption of just under 2M SF, according to CBRE’s report that stated 45% of available office is sublease space with 1.5M SF of sublease space added in Q1.
Given the current climate, an increase in office supply might appear concerning. However, most of the new construction is pre-committed, CBRE Tech Insights Center Executive Director Colin Yasukochi said.
“The oversaturation in the San Francisco market has really more to do with existing space and predominantly sublease space that was put onto the market,” Yasukochi said. “There is certainly new product that is going to be delivered in 2021 but the majority of that has been pre-leased and has been pre-leased for years.”