In one of the largest transactions of the second quarter, Diamond Investment Properties has purchased a two-building office development in San Mateo, Calif., for $320 million, reported The Registry.
The sellers were Goldman Sachs and Hines, who had worked to redevelop the site, which was completed in 2017.
San Mateo County’s combined office and R&D market recorded an average asking rent of $5.25 per square foot on a monthly, full-service basis in the second quarter of 2019, reported Cushman & Wakefield. This translates to an increase of 7.4 percent from the year ago reading of $4.89 per square foot. For the first time this cycle, the average overall asking rate was recorded higher than the average direct rate, which stood at $5.10 per square foot. A wave of subleases has appeared within downtown markets and within new construction. Due to prime location and quality, these new sublease rates are priced much higher than the average direct space. Downtown areas have access to top-tier retail amenities and are serviced by Caltrain (rail service between San Francisco and Silicon Valley). These features are significant marketing points that draw in potential tenants willing to pay a premium. With the current market conditions these sublease listings aren’t expected to last very long especially given the quality and demand of this product.
Prospective tenant demand in San Mateo County continues to grow despite recent heavy leasing activity. Nearly 3.3 million square feet of active tenant requirements are currently being tracked for office and R&D uses. From large campus-style tech users to smaller startups, there is no shortage of tenants looking to find a home on the Peninsula. In the second quarter, net absorption was recorded at positive 610,000 square feet. This puts the combined year-to-date net absorption at positive 1.4 million square feet. Looking ahead, new construction pre-leasing will add another 2.2 million square feet in net absorption over 2019 and 2020, while an additional 315,000 square feet of leasing in existing properties will be included in net absorption in the second half of 2019.