REAL ESTATE OUTLOOK
SAN FRANCISCO OFFICE MARKET FOURTH QUARTER 2017
Turning the Page on 2017, the San Francisco office market continues to thrive Dropbox, Inc. signs record lease
San Francisco had an historic year with strong leasing activity, robust development TRENDLINES and an encouraging economic outlook as 2017 came to a close. Dropbox, Inc. signed the largest lease transaction in the City’s history, and large development 5-YEAR TREND CURRENT QUARTER projects inched ever closer to completion with pre-leasing activity supporting VACANCY speculative developers. The Bay Area is well below the national unemployment average, and San Francisco in particular reached one of the lowest unemployment 8.6% rates for the City in recent decades. As the page is turned to 2018, the outlook for Vacancy remains flat in the San Francisco office market remains positive as market fundamentals suggest 4th quarter continued growth. ABSORPTION ECONOMY 330,373 SF Bay Area economy at near full employment Absorption continues San Francisco had its best three month stretch for job growth of 2017 with 11,500 positive gains jobs added year over year, a 2.11% increase. The unemployment rate for San Francisco dropped to 2.3% at the end of the quarter, 80 basis points lower than RENTAL RATE the same period a year ago, and the lowest unemployment figure since December $73.57 PSF 1999 (2.4%). In the surrounding Bay Area, unemployment rates in San Mateo Rental rates have County (2.1%) and Marin County (2.2%) remain the top performing counties in steady upward trend California again in the 4th quarter. Santa Clara County (2.6%), Alameda County
(2.9%), and Contra Costa County (3.1%) are all well below the National average UNDER CONSTRUCTION of 4.1%, and California’s average of 4.0% unemployment. 6,030,459 SF SUPPLY & DEVELOPMENT Major downtown Significant pre-leasing continued in 4th quarter development projects near delivery Dropbox Inc. signed the single largest lease transaction in San Francisco history (736,000 SF) when it pre-leased the Exchange at 1800 Owens Street in early PRICE PER SQUARE FOOT October. The transaction has left Park Tower on Howard Street, scheduled for a 4th quarter 2018 delivery, as the largest block of available office space left in San $694 PSF Francisco. This further impacted an already tight life sciences market with the San Francisco sales removal of a large block of lab capable space, impacting major life sciences firms activity strong in 2017 looking to take advantage of downtown amenities and talent. Delivery of 350 Bush Street was pushed back to early 2018, with the building signing Atlassian JOB GROWTH (145,000 SF) and Publicis (52,000 SF) in the 4th quarter, bringing pre-leasing to 11,500 jobs 100% prior to completion. Salesforce Tower and 181 Fremont are also nearing Strong year-over year their anticipated delivery in the first half of 2018. job gains and near full employment SAN FRANCISCO OFFICE MARKET FOURTH QUARTER 2017
VACANCY UNEMPLOYMENT RATE Vacancy is flat in 4th quarter
UN TED STATES SAN FRANC SCO San Francisco’s combined office vacancy rate for Class-A and Class-B space in the 4th quarter was 8.6%, essentially flat to the previous quarter. Notable lease transactions included the previously mentioned Dropbox, Inc. (736,000 SF) and