• Share
  • Email
  • Embed
  • Like
  • Private Content
San Francisco Real Estate Office Research & Forecast Report - 2Q2011
 

San Francisco Real Estate Office Research & Forecast Report - 2Q2011

on

  • 451 views

San Francisco Real Estate Office Research & Forecast Report - 2Q2011

San Francisco Real Estate Office Research & Forecast Report - 2Q2011

Statistics

Views

Total Views
451
Views on SlideShare
451
Embed Views
0

Actions

Likes
0
Downloads
7
Comments
0

0 Embeds 0

No embeds

Accessibility

Upload Details

Uploaded via as Adobe PDF

Usage Rights

© All Rights Reserved

Report content

Flagged as inappropriate Flag as inappropriate
Flag as inappropriate

Select your reason for flagging this presentation as inappropriate.

Cancel
  • Full Name Full Name Comment goes here.
    Are you sure you want to
    Your message goes here
    Processing…
Post Comment
Edit your comment

    San Francisco Real Estate Office Research & Forecast Report - 2Q2011 San Francisco Real Estate Office Research & Forecast Report - 2Q2011 Document Transcript

    • Q2 2011 | officeSAn FrAnciScoRESEARCH & FORECAST REPORT From Recovery to Rapid Expansion oVerView The San Francisco office market is beyond the recovery phase of the market cycle and well into the expansion period. Absorption growth, low vacancy, and a lack of new supply have combined to drive rents and encourage new and existing owners to kick off redevelopment plans. During the second quarter of 2011, the city experienced 560,121 square feet of positive net absorp- tion, which brought the year–to-date total to 1,047,151 square feet. The growth during the quarterMArket indicAtorS pushed the vacancy rate down to 13.6 percent from 14.2. Q2 Despite tenant expansions, job gains were anemic. The unemployment rate has been declining 2011 largely due to a dwindling labor force, not from an increase in hiring. At 8.4 percent in April, San 2011 Francisco’s unemployment rate is slightly below the U.S. rate at 9.0 percent and well below the over- VAcAncy all State of California’s rate at 11.4 percent. net AbSorption Nearly 1.7 million square feet of lease transactions took place during the quarter, which is on par with the city’s historical average. The success of the technology sector is still driving the local economy, conStruction as small to mid-size technology firms accounted for more than 44 percent of the market’s total ac- tivity. Leasing activity from finance and insurance companies is also beginning to gain traction, and weighted rentAl rAte represents nearly 23 percent of the total transaction volume.non weighted rentAl rAte Strong leasing activity and continued tenant demand pressured increases in rents across the board. The non-weighted average effective rent for Class A space increased 8.1 percent during the quarter SAleS VoluMe to $36.92 per square foot. The weighted average for the same category surged 15.8 percent to SAle priceS $40.85 per square foot during the same period. Several larger lease transactions with high price tags at 1 Maritime Plaza and One Market Street explain the difference between the two. High investment sale prices and a high volume of trades allowed for the San Francisco investment market to experience impressive growth during the second quarter of 2011. Based on closedupdAte eFFectiVe rentAl rAte QuArterly coMpAriSonAbsorption and Vacancy rates rent increASeS800,000 20% 1Q 11 2Q 11 2Q 11 2Q 11 %600,000 15% overall Direct Sublease overall Change Several larger lease400,000 10% transactions with *Financial District: Class A $35.03 $43.15 $24.18 $41.72 19.1%200,000 5% high price tags at 0 0% $33.76 $38.12 $24.06 $36.95 9.4% 1 Maritime Plaza and-200,000 -5% *All Markets: Class A $35.28 $42.35 $24.79 $40.85 15.8% one Market Street-400,000 -10% during the quarter-600,000 -15% $34.15 $38.08 $24.55 $36.92 8.1% explain the dramatic-800,000 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q -20% *All Markets: Class B $29.41 $30.74 $31.57 $30.75 4.6% difference between weighted and non 04 04 04 05 05 05 05 06 06 06 06 07 07 07 07 08 08 08 08 09 09 09 09 10 10 10 10 11 11 Net Absorption Vacancy $29.04 $31.80 $31.26 $31.78 9.4% weighted rents. *All Markets: Class C $29.88 $33.83 $20.45 $32.96 10.3% $24.73 $29.82 $20.45 $28.48 0.0% *weighted average rentswww.colliers.com/sanfrancisco Lorem Lorem Lorem Lorem Lorem
    • research & forecast report | Q2 2011 | oFFice | San FranciSco transactions, buildings in escrow, and active additional 9,801 square feet at 706 Mission South Financial investment offerings, it is expected that San Street. District Francisco’s investment volume will exceed $2 In addition to organic growth there were 69,000 Yerba billion in NORTHEAST NORTHWEST 2011. square feet of new tenants. Newcomers to the Soma East Buena Looking ahead, many owners and developers are market included Grass Valley, who took 13,907 dusting off plans that were shelved during the AIR- SOUTHWEST PORT square feet at 475 Brannan, Cloudera, who took last economic downturn. San Francisco is now SOUTHEAST 10,440 square feet at 433 California and Meebo, well into the expansion segment of the office who took 9,593 square feet at 101 Montgomery market cycle, as Shorenstein, GLL Properties, Street. Dewey LeBoef, a law firm, returned to Tishman Speyer, and SKS Investments move the city after a brief relocation to Silicon Valley forward with projects that will add a total of 1.1 and occupied 19,844 square feet at One million square feet to the city’s supply. Montgomery tower. AbSorption VAcAncyThe success of the technology sector isstill driving the local economy, as small Largely driven by well-funded technology firms Absorption growth during the quarter shed .6to mid-size technology firms accounted either entering the San Francisco market for the percentage from the city’s overall vacancyfor more than 44 percent of the market’s first time or expanding an existing footprint, the dropping it to 13.6 percent from 14.2 percent.total activity. This is evidenced by the city experienced 560,121 square feet of positiveactivity in SOMA East, the preferred Vacancy rates varied between submarkets. Theaddress of the technology sector. During absorption during the quarter, which brought the SOMA East submarket, the preferred location ofthe quarter, the submarket’s vacancy year to date total to 1,047,151 square feet. the technology sector, dipped to 9.8 percent.dipped below the 10 percent mark,(historically the trigger for rents to The absorption was driven by organic growth Historically when vacancy drops below 10surge) to 9.8 percent. from several small to mid-sized companies, percent, rents surge. mainly in the tech sector, taking on more space. With little vacant subease space to turn to, rents Examples include Zinio, who took another floor for direct space will increase dramatically. of 15,608 square feet at 114 Sansome Street, Vacant sublease space provides an economic ngMoco, who expanded into 12,277 square feet option for tenants with flexible lease terms, and at 475 Brannan Street, and Yelp, who took an updAte lease and investment transactions SigniFicAnt leASeS Q2 2011 property AddreSS tenAnt Size type dAte Signed clASS 1355 Market Street Twitter 200,000 New April-11 B 1 Maritime Plaza Farallon Capital 63,246 Renewal May-11 A 1 Maritime Plaza Pisces 63,000 Renewal May-11 A Two Embarcadero Center Cornerstone Research 42,291 Sublease Jun-11 A 1 Maritime Plaza Offit Hall Capital Management 43,692 Renewal Apr-11 A 101 2nd Street Moss Adams 28,577 New Jun-11 A 50 Beale Street Vertical Response 28,121 New Jun-11 A 425 Market Street Regus Business Center 27,506 Renewal April-11 A SigniFicAnt SAleS Q2 2011 price property AddreSS Seller buyer SQ. Ft. SAle dAte clASS SAle price per SF 101-121 Spear Street Beacon Capital Partners Hudson Pacific 547,964 May-11 A $189,000,000 $344.91 Shorenstein Properties 499 Illinois Street* Alexandria RE Equities 453,256 Apr-11 A $293,000,000 $646.43 jv. SKS Investments 500 Terry Francois Boulevard The Lionstone Group Sobrato/TMG Partners 291,000 May-11 A $95,050,000 $326.63 350 Rhode Island Street Paladin Realty Partners Tishman Speyer 135,509 Apr-11 A $42,000,000 $309.94 250 Montgomery Street Argonaut Private Equity McMorgan & Co. 118,538 Jun-11 A $37,050,000 $312.56 275 Sacramento Street Vornado Realty Trust Open TV Corp 77,200 Apr-11 A $36,800,000 $476.68 *Primarily Medical Office Buildingp. 2 | collierS internAtionAl
    • research & forecast report | Q2 2011 | oFFice | San FranciSco new u/c existing properties Absorption Supply & proposed Sublease Vacancy net new Supply Sublease Vacant Occupied Space net new Supply Total Inventory Current Period # of Buildings Vacancy Rate Vacancy Rate Vacancy Rate Direct Vacant Current Net (square feet) (square feet) (square feet) (square feet) (square feet) (square feet) (square feet) (square feet) construction Prior Period Total Vacant Absorption Absorption proposed YTD Net current under Direct Class ytd RateDOWNTOWN MARKET: A 171 52,333,099 6,937,846 13.3% 349,740 0.7% 7,287,586 45,045,513 13.9% 15.1% 295,628 658,809 - - 288,000 5,938,520 B 291 25,523,686 3,693,706 14.5% 51,525 0.2% 3,745,231 21,778,455 14.7% 17.1% 198,030 412,546 - - - - C 143 7,778,573 586,580 7.5% 1,760 0.0% 588,340 7,190,233 7.6% 7.1% 66,463 (24,204) - - - - Total 605 85,635,358 11,218,132 13.1% 403,025 0.5% 11,621,157 74,014,201 13.6% 14.9% 560,121 1,047,151 - - 288,000 5,938,520FINANCIAL DISTRICT: A 105 40,236,611 4,309,725 10.7% 347,957 0.9% 4,657,682 35,578,929 11.6% 13.1% 228,128 630,306 - - 67,000 4,198,000 B 79 8,060,719 1,088,395 13.5% 9,808 0.1% 1,098,203 6,962,516 13.6% 14.1% 23,069 (16,065) - - - - C 43 1,896,298 136,620 7.2% - 0.0% 136,620 1,759,678 7.2% 8.6% 25,594 11,629 - - - - Total 227 50,193,628 5,534,740 11.0% 357,765 0.7% 5,892,505 44,301,123 11.7% 13.1% 276,791 625,870 - - 67,000 4,198,000 - - -SUBMARKETS: North Financial 118 26,783,376 3,403,658 12.7% 254,207 0.9% 3,657,865 23,125,511 13.7% 15.1% 197,071 350,715 - - - 469,000 South Financial 109 23,410,252 2,131,082 9.1% 103,558 0.4% 2,234,640 21,175,612 9.5% 10.9% 79,720 275,155 - - 67,000 3,729,000 Total 227 50,193,628 5,534,740 11.0% 357,765 0.7% 5,892,505 44,301,123 11.7% 13.1% 276,791 625,870 - - 67,000 4,198,000 Union Square 57 3,839,477 283,565 7.4% 1,783 0.0% 285,348 3,554,129 7.4% 11.2% 36,808 66,742 - - - Yerba Buena 32 4,072,149 963,719 23.7% - 0.0% 963,719 3,108,430 23.7% 26.5% (10,267) 12,827 - - - 140,000 SOMA West 30 2,748,771 774,558 28.2% 1,760 0.1% 776,318 1,972,453 28.2% 24.0% 22,134 61,664 - - - - SOMA East 53 5,125,653 471,510 9.2% 33,000 0.6% 504,510 4,621,143 9.8% 13.8% 144,903 98,193 - - - 870,000 Civic Center/Mid-Market 49 6,433,923 1,605,861 25.0% - 0.0% 1,605,861 4,828,062 25.0% 25.6% 5,001 16,949 - - 221,000 Jackson Square 41 2,429,895 203,874 8.4% - 0.0% 203,874 2,226,021 8.4% 10.4% 8,435 42,028 - - - - North Waterfront 51 3,957,245 410,871 10.4% 8,717 0.2% 419,588 3,537,657 10.6% 8.1% 16,538 24,469 - - - - Van Ness Corridor 26 1,608,591 279,621 17.4% - 0.0% 279,621 1,328,970 17.4% 18.6% 7,909 6,577 - - - - Potrero West 14 1,410,391 66,722 4.7% - 0.0% 66,722 1,343,669 4.7% 10.9% 34,848 58,964 - - - - Potrero East 11 1,040,544 73,604 7.1% - 0.0% 73,604 966,940 7.1% 10.9% 17,021 29,380 - - - - Mission Bay 14 2,775,091 549,487 19.8% - 0.0% 549,487 2,225,604 19.8% 20.9% - 3,488 - - - 730,520 Total 605 85,635,358 11,218,132 13.1% 403,025 0.5% 11,621,157 74,014,201 13.6% 14.7% 560,121 1,047,151 - - 288,000 5,938,520 -QUARTERLY COMPARISON AND TOTALS Q1 - 11 605 85,540,175 11,577,224 13.5% 598,912 0.7% 12,176,136 73,364,039 14.2% 14.7% 487,030 487,030 - - 288,000 5,938,520 Q4 -10 605 85,442,720 11,702,139 13.7% 877,621 1.0% 12,579,760 72,862,960 14.7% 14.8% 245,229 240,287 210,000 320,000 288,000 5,938,520 Q3 -10 605 85,442,720 11,540,647 13.5% 1,074,342 1.3% 12,614,989 72,827,731 14.8% 15.0% 200,072 (4,942) - 182,073 277,000 6,383,520 Q2 -10 605 85,442,720 11,668,426 13.7% 1,146,635 1.3% 12,815,061 72,627,659 15.0% 14.6% (292,962) (205,014) - 182,073 320,000 6,383,520 Q1 - 10 605 85,442,720 11,389,438 13.3% 1,110,636 1.3% 12,500,074 72,942,646 14.6% 14.6% 87,948 87,948 - 182,073 320,000 6,383,520 inVeStMent SAleS MArket investment sales activity will be strong through the second half of 2011 as an equilibrium between buyers and sellers begins to appear. the rapidly improving market fundamentals will continue to encourage an aggressive bidding environment for most downtown assets. collierS internAtionAl | p. 3
    • research & forecast report | Q2 2011 | oFFice | San FranciScowhen in large supply, it can decrease overallrents. However sublease vacancy has diminished total of 140 tenants in the market with 3.69 million square feet of office space requirements. 512 offices inrapidly, and currently stands at 0.5 percent, 37.5 While it is highly unlikely that 100 percent of 61 countries onpercent drop from last quarter’s 0.8 percent, and these tenants will fulfill their stated space needs,the lowest point since Q3 2000. it does provide an indicator that there will be 6 continents healthy leasing activity for the remainder of the United States: 125 year. As a result, Class A non-weighted rentalrentS Canada: 38 rates will likely increase further by 5-10 percent Latin America: 18With supply dwindling, rental rates saw a by year end, for a total increase of 13 to 18 Asia Pacific: 214 percent year over year. EMEA: 117dramatic shift during the quarter. The overall (Europe, Middle East, and Africa)average non weighted net effective rental rate • $1.5 billion in annual revenuefor Class A office space increased 8.1 percent to inVeStMentS$36.92 per square foot. The average net effective • 979 million square feet underrent for direct Class A office space specifically in Strong market rent growth along with more than managementthe Financial District increased 9.4 percent to 1 million square feet of positive absorption • over 12,000 professionals$38.12 per square foot through the second quarter has encouraged aggressive underwriting by investors and a San FranciSco:A slough of larger-sized renewals drove thedramatic increase in average effective rental competitive bidding process for most assets. The Alan D. Collenetterates, as renewals and large tenants typically South of Market submarket continues to surprise Managing Directordemand a higher rent than a new lease. Out of the investment community as the best buildings 50 California Streetthe 15 transactions that commanded rental rates with “brick and timber” office space are 19th Floor commanding pricing above $400 per square San Francisco, CA 94111greater than $50 per square foot during the foot. tel +1 415 788 7850quarter, ten were renewals. The average non FAX +1 415 433 7844weighted net effective rental rate for renewals in Remarkably, since the market bottomed inClass A office space was $44.64 per square December 2009, the average price for a typicalfoot, compared to $32.96 per square foot for Class A building has risen by 50 to 70 percent. MArketing:new leases in Class A space. For example, 250 Montgomery Street traded for Sonia RollAverage effective rents for Class A office space $177 per square foot at the end of 2009, and it Regional Marketing Managerin the North Financial District increased 6.9 recently closed for $313 per square foot, a 77 sonia.roll@colliers.compercent to $36.80 per square foot during the percent increase. tel +1 415 288 7836quarter. The increase was largely influenced by High Investment sale prices and a high volumeseveral renewals that took place at One Maritime of trades allowed for the San FranciscoPlaza that were greater than $50 per square Investment market to experience impressive This document/email has been prepared by Colliersfoot. Similarly, the average effective rent for growth through the first two quarters of 2011. International for advertising and general information only. Colliers International makes no guarantees,Class A office space in the South Financial Based on closed transactions, buildings in representations or warranties of any kind, expressed orDistrict increased 14.0 percent to $37.24 per escrow, and active investment offerings, it is implied, regarding the information including, but not limited to, warranties of content, accuracy and reliability.square foot during the quarter, due to a expected that investment volume in San Any interested party should undertake their ownsignificant number of large renewals at One Francisco will exceed $2 billion in 2011. inquiries as to the accuracy of the information. Colliers International excludes unequivocally all inferred orMarket. Several more deals are expected to close through implied terms, conditions and warranties arising out of this document and excludes all liability for loss andLooking forward, tenant demand will further the end of 2011 as the San Francisco market damages arising there from. Colliers International is atighten market conditions. We expect the market continues to show strength. However, the worldwide affiliation of independently owned and operated companies.will experience a total of 1.75 million square feet abundance of new offerings currently on theof absorption growth by year end, an all time market could potentially temper pricinghigh since the 3 million square feet of tenant expectations as a balance between supply andgrowth recorded in 2000. Currently there is a demand is approached. Accelerating success.www.colliers.com/sanfrancisco