The San Francisco investment market closed the fourth quarter of 2017 with more than $500 million in total sales and $4.3 billion for the year, according to Cushman & Wakefield. Activity has slowed down as many class A properties have traded at record levels and are performing exceptionally well with high occupancy rates at market rate pricing.
A total of 6.5 million square feet was under construction at the end of the fourth quarter with 2.2 million square feet of new construction scheduled to deliver in the first quarter of 2018 including Salesforce Tower, 181 Fremont Street and 350 Bush Street. At the close of the quarter, 2 million square feet (91 percent) of this inventory was pre-leased. Cushion & Wakefield predicts these properties will deliver 100 percent pre-leased.
There is a total of 2 million square feet remaining in San Francisco’s Prop M large cap office allocation. However, there is approximately 4.1 million square feet of pending projects. And there is potential for future development in the Central SoMa neighborhood, up to 6 million square feet in even annual increments over the next 10 years, which could potentially put further pressure on the allocation.
Near record leasing in 2017 created a bit of a drain on the pool of active tenants in the market. Requirements totaled 4.5 million square feet at year-end, down 1.5 million square feet since the fourth quarter 2016; however, large block demand continues to outpace supply. There are 14 space requirements of 100,000 square feet or more but only eight options that can offer occupancy in 2018, therefore the large block space market will remain tight in the near term as quality space becomes increasingly scarce.
There was 8.7 million square feet of new leasing activity in 2017, the fourth highest figure ever recorded in San Francisco (only 1999, 2000 and 2014 were greater and not by a big margin).
And overall net absorption (the net change in occupied space) was positive in the fourth quarter, totaling +253,149 square feet although it was a negative 350,000 square feet for the year.
Also during 2017, two streets in San Francisco are considered among the most expensive streets for office space, according to JLL’s 2017 Most Expensive Streets study.
And the city was named the number one high-tech job growth market for the sixth year in a row with a 39.4 percent job growth from 2015 to 2016, or 22,367 tech jobs added.
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