San Francisco Office Rents: Q2 2015

The net occupancy of office space in San Francisco increased by a nominal 66,000 square feet in the second quarter of the year, the smallest quarterly increase in two years and versus 539,000 square feet of net absorption in the second quarter of 2014.

That being said, potential demand remains high and DTZ is currently tracking interest for 5.5 million square feet of space, which is relatively unchanged from the same time last year.  But a number of factors are slowing absorption and deal flow in the city.

Availability of sublease space has ticked up 30 percent over the past six months to 1.1 million square feet; few large blocks of space is frustrating larger players; and average asking rents have increased to $66.77 per square foot, up 5.6 percent over the past quarter and 13.9 percent higher over the past year.

In fact, the current average asking rent for office space in San Francisco has increased 113 percent since the first quarter of 2010 and is within 6 percent of the historic peak ($70.94) reached at the height of the dotcom boom in the third quarter of 2000.

In the words of DTZ, “while growing technology companies have a seemingly insatiable demand for office space, despite the high prices, the increasing rents continue to put a strain on established businesses that are more focused on the bottom line.”

Or as we wrote nine months ago, “it’s not just the non-profits that are now being driven out of the city in search of cheaper space, but professional firms as well, with the surge in rental rates negatively affecting profitability for businesses that are worried about such things.  And in the near term, it’s likely to get worse.”

For those looking for relative bargains, the areas around Jackson Square ($56.41) and Rincon Hill ($59.81) are currently asking the least, while “creative space” and access to transportation continue to command a premium and the most expensive area in San Francisco remains around AT&T Park with an average asking rents of $79.05 per square foot.

And of course, the average asking rent for office space in downtown Oakland is currently running around $38.50 per square foot.

Comments from Plugged-In Readers

  1. Posted by jsimms3

    So let’s impose all these moratoriums on building office and residential!

    I get it…no Manhattanization. No Miamization. Bla bla bla. But at what point do we say “hey, we need diverse employment and it’s not such a terrible thing to have all these people living here as opposed to destroying more of Mother Earth to accomodate them in drive til you qualify communities?”

  2. Posted by EcceMorons

    Where does SF currently stand re: Prop M limits? Have current office space developments bumped up against those limits? If not, how many more square feet can be built in the next year or two?

    • Posted by Dave

      Yes, end of this year or early next year the limits are reached. An much the immediate coming years allotment goes to Mission Bay and Lennar (HP). I think Lennar gets up to 3 million square feet which is a 4 year allotment. Add that to Mission Bay and parts of Transbay Center pre-approved it leaves little if any room for office construction for the next decade in SF. Plans for the Flower Mart or Chronicle building are a decade plus away because of the allotment. Which means they will likely never see the light of day.i

  3. Posted by Dave

    Interesting in light of the article about the Oakland near-historic office absorption. All while SF slips.

    Point to take from article – lots of sublease space is becoming available in SF as companies (Schwab left 100 Fremont about 1/3 empty with its recent move) leave SF. Not a healthy sign no matter what Mayor Lee may tell you.

    Oakland is getting the non-profits, professionals and general business as well. All fueling its booming office market. Not to mention 2 high tech companies rumored to take huge chunks of space in Oakland, not SF. it was reported here months back.

    Oakland if it plays its cards well is in the cat’s bird seat.

    A healthy mix of business types, while SF depends on the latest fad and, a populace open to very tall buildings. Oakland could become a sort of Vancouver south with high-rises built fairly close to the Bay.

    It has the transportation, it has the space, it has a willing populace.

    Only question is – 30 years from now will San Jose or Oakland be the defacto downtown of the Bay Area.

    • Posted by anon

      lol, funny stuff. Are we not seeing the maximum amount of office construction possible in SF? Wouldn’t the culprit of SF “slipping” behind SJ or Oakland be prop M then?

      PS – SJ can’t really become a downtown of any type, with the height limits imposed because of the airport. Even at maximum build out it would a fraction of the size of SF. I’d love to see that maximum build out happen, but it’s very unlikely. Downtown SJ space would need to be significantly cheaper than SF space before it would garner much interest due to the relative lack of amenities.

      • Posted by Dave

        You are right about SJ. I think Oakland is poised to become the financial/business center (downtown) o the Bay Area over the next 30 years.

        • Posted by anon

          Wouldn’t that mean that downtown Oakland would need to sextuple or more in size in terms of office space?

          • Posted by Dave

            Yes but note I said this transformation will take 30years.

            All Oakland needs to do is revive the proposal for an 80 plus story building that was made long ago. Sell it to one o the high-tech companies wanting a North Bay headquarters in, rumored, Oakland. Voila.

            It would be the tallest in the Bay Area and, if they play their cards right and depending on proposals for buildings taller than the LA KAL tower (tallest on West Coast ow), Oakland could end upwith the tallest West Coast tower.

            Add to that Hi-speed rail. I still say there is a fair chance it ends up comingintoOaklandinstead of SF. Huge monied opposition on Peninsula building. But the voters voted on it – yeah they vote on many things the courts throw out.

            It will, in any case, be a decades long process.

          • Posted by anon

            But what has changed? Oakland has always had the potential to do this.

          • Posted by woolie

            Dave, I love the ideas, but I think you’re getting ahead of yourself.

            Oakland rents are still 1/2 of San Francisco, new office construction is still years from penciling out, no company has stepped up to prelease a new tower, etc. Additionally, I think you are vastly overstating Oakland’s willingness to accept very tall buildings. While it is true the *current* Oakland CBD has areas without height limits, there are in FAR and setback requirements. Additionally, any major new construction in downtown Oakland will immediately run into local tech/gentrification politics. New community benefits and linkage fees will also likely be required after the Downtown Area Plan is released and the Nexus Report is published.

            But yes, Oakland does have many natural advantages that *should* make it the business center of the Bay Area: center of BART, good freeway access, relative affordability of the East Bay compared to SF/SV, and somewhat liberal zoning.

        • Posted by Cogate

          Dave@ the only reason companies are even looking at Oakland is because it is too expensive in SF. Remember the first DOT COM. When it crashed, all this companies that moved to Oakland moved back to SF because the prices came down. Very unlikely Oakland will be the financial Center for the Bay Area in 30 years or even 100 years. They are the Brooklyn to SF.

          • Posted by moto mayhem

            brooklyn is much nicer

    • Posted by Oakland lover

      I love oakland as you can see, but it will never be the core. SF will always be. Im all for SF being the core. Oakland is nice being so close to the city….but hopefully maintains some degree of culture and creativity and diverstity that SF just doesnt have much of anymore…SF the rich white Im better than you crowd…let it be, its all good. keep oakland cheaper (relatively) and more diverse.

  4. Posted by REpornaddict

    Looks like my own firm (and by extension, me) is going to be a victim of this in a couple of years when our lease is up *hides head in sand*

    Any idea why Jackson Sq is the cheapest? That’s actually one of my favorite couple of blocks in the City, beautiful area I think.

    • Posted by Ep

      Faaaar from BART, crap transit. not close to the hot hot SoMa action. But agree that it’s very charming.

    • Posted by JR "Bob" Dobbs

      Jackson Sq. is very pretty. But very inconvenient. I once turned down a great job there because I did not want to make that hike from the underground every day.

  5. Posted by REpornaddict

    Hmm..It is probably about an extra 5 minute or so from my current spot around Cali/Kearney – I’d happily walk the extra for the extra Gemutlichkeit that wandering around Jackson Sq seems to create..

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