By Bay Area Team
The Bay Area commercial real estate market in 2019 continues white-hot with no obvious signs of slowing down, which is crazy. Over the entire region, there are certain submarkets outperforming and others marginally underperforming. Tech is still the primary driver, and while tech is increasingly willing to look to East Bay alternatives in order to find “value,” for the most part, they are unwilling to look north across the Golden Gate Bridge where lower rents can still be found. Credit Karma is the latest example of looking east, with a new lease in Oakland for 106,000 SF and plans to still maintain their headquarters in the city. For this market report, we are going to focus in the city.
Spotlight: San Francisco
- A number of large forward commitments at this late stage of the market cycle are interesting to note, including newly public Pinterest’s 490,000 SF lease for the to-be-redeveloped San Francisco Tennis Club in SOMA with an anticipated delivery date not until 2023. Also, of note, large office early-renewals in Embarcadero Center and elsewhere on spaces not expiring until 2022 and later reflects that large companies are being forced into defensive mode in order to protect the space that they have.
- Big deals continue to dominate and define the market, including Asana (268,000 SF), Samsara (154,000 SF), Cooley (130,000 SF), Knotel (110,000 SF) and Marsh & McLennan (85,000 SF).
- Bay Area IPO’s are like rocket fuel thrown onto the white-hot market, accelerating both the commercial and the residential real estate markets. Q1 newly public companies include Lyft, Pinterest, Levi’s and PagerDuty. Next up watch for WeWork, AirBnb, Uber and others. Just for fun, consider this—reported annual losses: WeWork $1.93 billion, Uber $1.8 billion, Lyft $911 million, Slack $140 million, Pinterest $63 million and PagerDuty $38.1 million. Call us skeptics, but since when does losing less money warrant ringing bells?
- Active tenant requirements being tracked now at 6.7 million SF, up 1.7 million SF from 2018.
- Vacancy rate for Class A space in San Francisco declined further and now stands at 5.2%, but that is overall. If you want to be in SOMA, that vacancy rate is just 2.8%. And to drill down further, if you want 100,000 SF or larger in SOMA? Well, good luck.
- Asking Class A rates in San Francisco increased to $82.26 per square foot, but again, that is overall. Looking for cool, brick and timber space in South Park? Get ready for $100 per square foot and above.
The commercial real estate market is cyclical. And by comparison to all recent cycles, we are currently in extra innings on this one. How long this game will last is anybody’s guess.