The tech sector followed by the financial/business sector has fueled the growth in San Francisco causing rental rates to increase more during the 2nd quarter than in any other of the previous 10 quarters.
For Q2, 2011:

  • The city wide vacancy rate continued to drop for the quarter to 13.3% with Class A and Class B at 10.9% and 17.3%, respectively within the Central Business District (CBD).
  • Asking rental rates increased for the fifth straight quarter to $37.01 and $29.17 for Class A and B buildings, an increase of 5% and 7%, respectively in the CBD.  The SOMA district posted the largest increase of 8.6% to an average rental rate of $36.58 for all classes of buildings.
  • The largest leases signed during the quarter were the EPA – 285,000 RSF renewal at 75 Hawthorne, Twitter – 210,000 RSF relocation to 1355 Market Street, Farella Braun & Martel – 112,000 RSF renewal at 235 Montgomery and Farallon Capital Management LLC – 65,553 RSF renewal at One Maritime Plaza.
  • There was significant increase in sales transactions, nearly 40% from the previous quarter, with 101 Spear Street, 409 & 499 Illinois, 201 3rd Street, 500 Terry Francois Blvd and 350 Rhode Island all changing hands.
  • San Francisco’s unemployment rate declined to 8.4% at the end of May, 2011, a significant drop from 10.1% in Feb 2011.

Looking forward:

  • With rising rental rates and dropping vacancy rates, the market is beginning to shift to a Landlord favored market with Landlords providing fewer concessions and being selective when choosing Tenants for their buildings.  As a result, Tenants will want to lock in early to get the best deal possible.
  • Buildings will continue to change hands which may cause spikes in operating expense pass throughs for existing Tenants.

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Provided by:  Julie Down, Real Estate Advisors