The Small Space Marketplace

List Your Space

Find Space

Home About Us Executive Subscriber Membership RENTV Conferences Newsletter Contact Us Advertise
July 12, 2024
 Search RENTV
 The REview
News Home Page
Southern California
Northern California
Pacific Northwest
Prop. Management
Press Releases
 R. E. Marketplace
Service Providers
Property Spotlight
 RENTV  Conferences
Subscriber Login:
Forgot Password?

Printer-friendly Version   Email an Associate
Large Tenants Keep Up the Demand for Office Space in San Francisco


Large tenants such as Facebook, WeWork, and Cruise Automation continue to drive the San Francisco office market, according to a new report released by real estate services firm Kidder Mathews. Tech companies face increasing competition for the few available large blocks of space. Major upcoming developments such as Park Tower and The Exchange are fully leased to Facebook and Dropbox respectively. Rents are relatively unchanged quarter over quarter, remaining close to the 2017 highs. Direct rents plateaued, staying in the low $60’s full-service citywide. Vacancies dropped to 5.5% in the second quarter. Unemployment in San Francisco remains at record lows.

Construction Update

In May, the San Francisco Planning Commission approved the Central SOMA plan. The area will have over 8,000 planned housing units, with 33% affordable. Additionally, 900k sf of PDR space is planned. Over 40,000 workers are scheduled to work in the planned office and retail developments. Important projects in the area include Kilroy’s planned Flower Mart redevelopment, providing 2.1 msf of mixed-use space, and Alexandria Real Estate’s Stripe HQ at 510 Townsend, providing 270k sf. Increased density and more multifamily developments bode well for future office demand. However, Prop M restrictions mean that 9.7 msf of large office projects in the pipeline are competing for 2 msf of available space in approvals.

The major lease for 2Q 2018 is Facebook’s entire occupancy of the soon-to-be complete 763k sf Park Tower. General Motors’ autonomous driving company, Cruise Automation, leased three buildings at 301, 333, and 345 Brannan St for 382k sf. Nektar Therapeutics has leased the upper floors at 360 3rd St for 136k sf. Demand remains strong for large blocks. Demand for small spaces below 50k sf remains flat as the vacancy rate hovers at 6%.

Co-working space availability continues to grow from last quarter. WeWork led this charge by leasing 77k sf at 353 Sacramento at a $71 effective rate in Q2. Over the past year, the company has signed leases for approximately 500k sf at 430 California, 44 Montgomery, and 415 Mission (a.k.a. Salesforce Tower).

Asking Rental Rates

Overall direct asking rents remained relatively flat quarter over quarter. Class A office rents decreased 1.1% quarter over quarter. Fully serviced Class A rates ranged from $66 in SOMA to $69 in direct rent in the Financial District. Class B office asking direct rates stayed relatively flat. Class B asking rates were relatively constant at $60 fully serviced across all submarkets. Class C direct office rents rose from $52.6 to $52.2 or 0.7% quarter over quarter.


The office market enjoyed considerable gains in the second quarter with 1.8 msf of positive direct net absorption. Class A buildings comprised 78% of this total. Mission Bay gained 855k sf over the 2nd quarter. Dropbox’s gradual settling into The Exchange accounted for 751k sf of this absorption. The North and South Financial Districts gained 815k sf. Facebook, Salesforce, and WeWork were the major tenants. Showplace Square gained 297k sf. Airbnb’s sublease of Zynga’s HQ at 650 Townsend for 670k sf provided the bulk of this absorption. New fully leased deliveries helped drive the vacancy rate downwards from 6.6% to 5.5%.


Sales of trophy properties created a very active second quarter, with $560 mil of volume. This is twice as much as Q1. Northwood Investors acquired 123 Mission for $290 mil from HNA Investors at a 4.8% cap rate. This property was part of HNA’s worldwide fire sale. Swift Realty Partners purchased the office component at 1390 Market (a.k.a. Fox Plaza) for $109.8 mil from Broadreach Capital Partners; Swift had a very active May, purchasing $277.3 mil worth of assets in California. Vanbarton closed on the purchase of 101 Mission for $160 mil at a 4.3% pro forma cap at the end of June. Major deals under contract include Clint Reilly’s purchase of 235 Pine. Overall cap rates for San Francisco office buildings declined to 4.6%, harkening back to first half of 2017 values.

Spotlight: Facebook

Facebook has been on a tear in the San Francisco market. Since September 2017, the social media giant has leased approximately 1.2 msf. In May 2018, Facebook signed the largest lease in San Francisco history, taking all 763k sf available in Park Tower (250 Howard Street). The Facebook division, Instagram, relocated its headquarters to 181 Fremont, right around the corner. That said, limited available San Francisco office space is guiding the company to look elsewhere to satisfy its breakneck pace of growth. In June 2018, Facebook leased 750k sf in Newark, across the bay from its Menlo Park headquarters. Overall, Facebook controls 6.1M SF in the San Francisco Bay Area.

Notable Leases Transactions

Facebook | 250 Howard Street | 763.1k sf
Cruise Automation | 301-345 Brannan Street | 381.5k sf
Nektar Therapeutics | 360 3rd Street | 135.9k sf

Notable Sales Transactions

Northwood Investors LLC| 123 Mission Street|345.6k sf | $300 mil or $868.07/s.f.
Swift Real Estate Partners| 260 California Street| 219.7k sf | $109.8 mil or $499.75/s.f.
Westbrook Partners| 2101-2129 Mission Street| 131.9k sf | $53.98 mil or $409.33/s.f

This report was put together by Jerry Holdner, Director of Research, Kidder Mathews
Source: RCA, CoStar, San Francisco Business Times, The Registry
*Figures and information for this report look only at industrial buildings larger than 15k sf

Return to the Archive page


Home | About Us | Newsletter | Contact Us | Executive Subscriber Membership | Executive Subscriber Home | Advertise
Southern California | Northern California | Pacific Northwest | Southwest | Retail | Multifamily | Financing | Property Management
Archives | Press Releases | Service Providers | JobWorks | Property Listings

Copyright © 2024 by RENTV, All Rights Reserved
Website designed by Regency Web Services, Inc. and powered by Lightning Media