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MARKETBEAT
San Mateo County Office & R&D Q1 2017
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6%
7%
8%
9%
10%
11%
12%
13%
14%
15%
2013 2014 2015 2016 2017
Historical Average = 9.8%
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
-200.00
-100.00
0.00
100.00
200.00
300.00
400.00
500.00
600.00
700.00
800.00
2013 2014 2015 2016 2017
Net Absorption sf (thousands) Asking Rent, $ psf
SAN MATEO COUNTY OFFICE & R&D
Economic Indicators
Q1 16 Q1 17*
12-Month Forecast
SF Peninsula Employment 1.1M 1.1M
SF Peninsula Unemployment 3.4% 3.0%
U.S. Unemployment 4.9% 4.8%
*Q1 17 data based on the average of January and February values.
Market Indicators
Q1 16 Q1 17 12-Month Forecast
Overall Vacancy 7.4% 7.7%
Net Absorption (sf) 229K 8.4K
Under Construction (sf) 750K 1.3M
Average Asking Rent* $4.58 $4.83
*Rental rates reflect full service asking $psf/month
Overall Net Absorption/Overall Asking Rent (Full Service) 4-QTR TRAILING AVERAGE
Overall Vacancy
Can Demand keep up with Supply?
The Bay Area’s commercial real estate market has started to ease
off the throttle after several years of record growth. Overall vacancy
still rests at healthy levels and average prices are still climbing, but
there is a definite trend: growth is slowing down. The Tech industry,
one of the dominant players in this market, has seen an uptick in
layoffs especially in San Francisco and the Silicon Valley. Some of
the larger tech firms are still hiring but relocating offices to more
affordable states like Texas, Arizona or Washington. Despite these
corrections, the Bay Area’s employment levels are high with just
under four million in its employed work force. Unemployment in the
Bay Area increased 50 basis points (BPS) year-over-year to 3.8%
but remains well below the national average of 4.8%. Thus, the Bay
Area is quite strong and remains the envy of many markets around
the country.
At the close of the first quarter of 2017, San Mateo County’s
combined office & R&D vacancy rested at 7.7%, a 50 BPS increase
from last quarter’s reading of 7.2%. Over the last year the vacancy
percentage has been fluctuating between the low to mid 7’s. Overall,
vacancy has been on the decline since 2009 when it was as high as
17.1%. During this time period over 4.2 million square feet (MSF)
has been added to the inventory (7.8% of the current market base).
There is no question that this is still a high performing market. That
said, tenant demand has recently eased, down to 1.5 MSF at the
close of the first quarter compared to just over 2.1 MSF in the
previous quarter. The majority of this is explained by tenants signing
leases, not just tenants leaving to look elsewhere. Three of the
largest deals signed this quarter were over 100,000 SF. Facebook
took 135,000 SF at 164 Jefferson in Menlo Park, Zoox took 126,000
SF at 1149 Chess in Foster City and Five Prime Therapeutics took
an entire building at the Cove in South San Francisco for 115,000
SF. There is still a lot of activity present, but the market has become
more balanced between landlord and tenant. With an increase in
availabilities expected, it may be moving more in favor of the tenant
for the remainder of the year.
Available sublease space has increased by almost 200,000 square
feet (SF) since last quarter with San Mateo County’s combined
office and R&D market now with a total of just over 1.0 MSF of
sublease space on the market. The sublease to direct ratio has
climbed to 24.7%. With the overall vacancy still below 10%, this
figure is less alarming but can become a problematic if tenant
demand cannot keep up. Existing sublease listings that have been
on the market for some time have started to lower their prices to
stay competitive with newer additions, however, there hasn’t been a
noticeable surge of tenants signing for these less expensive spaces
MARKETBEAT
San Mateo County Office & R&D Q1 2017
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$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
$5.00
$5.50
2013 2014 2015 2016 2017
Class A Class B
Cla
ss A
Cla
ss B
34180
71
59
0-5K
5-10K
10-20K
20K+
551
Listings
$7.24
$5.33 $5.22
$4.79 $4.70 $4.40
$3.86 $3.82 $3.60
$3.27 $3.26
$0
$1
$2
$3
$4
$5
$6
$7
$8
MP RWC FC RWS SM SSF BR BMT/SC DC BUR SB/MB
Average Asking Rate by Submarket (Full Service) MENLO PARK CONTINUES TO COMMAND THE HIGHEST RATES
Availabilities by Size Segment NUMBER OF LISTINGS HAVE INCREASED 10.6% SINCE Q1 2016
Average Asking Rate by Class (Full Service) ASKING RATE GROWTH LOSES MOMENTUM THIS QUARTER
Outlook
Vacancy levels have been fluctuating between the low to
mid 7’s over the last year. Q1 2017 recorded a vacancy of
7.7%.
Net Absorption this quarter was flat, just under 10,000 SF.
There was a good amount of deal activity, however just as
much space came back on the market.
Asking prices are still increasing but at slower rates due to
the increased amount of cheaper sublease space.
yet. In addition, we are tracking a large amount of direct corporate
owned availabilities and indirect sublease space of over 330,000
SF that will hit the books in the second quarter plus an additional
170,000 SF in the second half of the year. The largest contributors
to this future addition of space will be Salesforce.com’s 114,262
SF sublease space at 900 Concar in San Mateo, 100,000 SF from
VISA at 801 Metro Center in Foster City, Informatica’s 84,089 SF
at 2000 Seaport in Redwood City and 67,027 SF at Bayside
Towers in Foster City. Due to these additions, vacancy will likely
rise higher in the next few quarters.
The average asking rent still continues to climb despite the
increase of cheaper sublease space. San Mateo County’s
combined office & R&D market recorded an average asking rent
on a monthly full service basis of $4.83 per square foot (PSF).
This is a slight increase from last quarter’s reading of $4.77 PSF.
Prices have been increasing since early 2010 when the average
rate was as low as $2.63 PSF. While the prices are still climbing
quarter over quarter, they are not climbing as fast as they were in
2014 or 2015, especially now that we have more sublease space
coming on the market.
Now, it’s not time to panic just yet. Net absorption was in the black
again this quarter by just under +10,000 SF thanks to some new
construction completions, most of which were leased. And,
healthy corrections are needed to avoid larger collapses in the
future. Right now demand is staying on par with space additions
but we will monitor movements closely to see if that balance
remains in place.
AVAILABLE SUBLEASE SPACE HAS INCREASED
BY 200,000 SQUARE FEET SINCE LAST
QUARTER.
MARKETBEAT
San Mateo County Office & R&D Q1 2017
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SUBMARKET INVENTORY
(SF)
SUBLET
VACANT
(SF)
DIRECT
VACANT
(SF)
OVERALL
VACANCY
RATE
CURRENT QTR
OVERALL NET
ABSORPTION
(SF)
YTD
OVERALL NET
ABSORPTION
(SF)
UNDER
CONSTRUCTION
(SF)
OVERALL
AVERAGE
ASKING RENT*
(ALL CLASSES)
OVERALL
AVERAGE
ASKING RENT*
(CLASS A)
Daly City 933,281 7,202 129,188 14.6% -1,068 -1,068 0 $3.60 $4.00
Brisbane 962,719 32,739 256,499 30.0% -91,173 -91,173 0 $3.86 $3.72
S. San Francisco 12,096,096 69,518 394,622 3.8% 197,125 197,125 0 $4.40 $3.64
San Bruno/Millbrae 1,705,911 10,102 6,779 1.0% 12,325 12,325 0 $3.26 $3.69
Burlingame 2,382,738 27,380 230,490 10.8% -77,582 -77,582 767,000 $3.27 $3.63
NORTH COUNTY TOTALS 18,080,745 146,941 1,017,578 6.4% 39,627 39,627 767,000 $3.91 $3.72
San Mateo 7,545,835 331,778 766,096 14.5% -54,347 -54,347 32,655 $4.70 $5.08
Foster City 5,069,657 60,448 405,144 9.2% 22,738 22,738 300,000 $5.22 $5.27
Redwood Shores 6,026,247 175,155 395,643 9.5% 25,588 25,588 0 $4.79 $4.84
CENTRAL COUNTY TOTALS 18,641,739 567,381 1,566,883 11.4% -6,021 -6,021 332,655 $4.84 $5.05
Belmont/San Carlos 2,688,672 122,548 72,377 7.2% -43,156 -43,156 0 $3.82 $3.65
Redwood City 6,722,459 80,730 158,196 3.6% 76,211 76,211 0 $5.33 $6.54
Menlo Park 8,546,017 117,962 345,801 5.4% -58,219 -58,219 205,222 $7.24 $8.93
SOUTH COUNTY TOTALS 17,957,148 321,240 576,374 5.0% -25,164 -25,164 205,222 $5.99 $7.81
CLASS BREAKDOWN
Office Class A 24,113,003 673,105 2,118,398 11.6% -71,144 -71,144 1,004,877 $5.17
Office Class B 5,946,446 173,876 369,239 9.1% -72,710 -72,710 0 $3.97
R&D 21,193,461 483,287 165,640 3.1% 150,357 150,357 300,000 $3.85
TOTAL 54,679,632 1,035,562 3,160,835 7.7% 8,442 8,442 1,304,877 $4.83 $5.17
*Rental rates reflect full service asking $psf/month
Key Lease Transactions Q1 2017
PROPERTY SF TENANT LANDLORD TRANSACTION TYPE SUBMARKET
164 Jefferson Dr. 135,307 Facebook Sobrato Development Co. Relocation Menlo Park
1149 Chess Dr. 126,345 Zoox Harvest & LaSalle Relocation Foster City
111 Oyster Point Blvd. 115,697 Five Prime Therapeutics HCP Life Science Estates Relocation S. San Francisco
171 Oyster Point Blvd. 70,000 Global Blood Therapeutics HCP Life Science Estates Relocation S. San Francisco
Key Sale Transactions Q1 2017
PROPERTY SF BUYER SELLER SALE PRICE / $PSF MARKET
700-900 Concar Dr. 213,346 Rakuten DivcoWest $183,477,560 / $860 San Mateo
1149 Chess Dr. 126,345 Harvest & LaSalle Whitney Investments $36,100,000 / $286 Foster City
2400 Broadway 14,980 Black Mountain Properties Pellarin & Co. $15,000,000 / $1,001 Redwood City
Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered
to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy
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Office & R&D Submarkets San Mateo County
MARKETBEAT
San Mateo County Office & R&D Q1 2017
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Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple
sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or
representations as to its accuracy.
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