Costar Office Report
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The CoStar Office Report MID-YEAR 2011 San Francisco Office Market SAN FRANCISCO – MID-YEAR 2011 MID-YEAR 2011 – SAN FRANCISCO San Francisco Office Market San Francisco Office Market OVERVIEW San Francisco’s Vacancy Decreases to 13.2% Net Absorption Positive 809,306 SF in the Quarter he San Francisco Office market ended the second quarter to positive 284,041 square feet in the first quarter 2011, positive 2011 with a vacancy rate of 13.2%. The vacancy rate 550,550 in the fourth quarter 2010, and positive 189,188 in the T was down over the previous quarter, with net absorp- third quarter 2010. tion totaling positive 809,306 square feet in the second quarter. The Class-B office market recorded net absorption of posi- Vacant sublease space decreased in the quarter, ending the quarter tive 122,533 square feet in the second quarter 2011, compared at 1,526,849 square feet. Rental rates ended the second quarter to negative (5,716) square feet in the first quarter 2011, negative at $31.75, an increase over the previous quarter. A total of two (91,333) in the fourth quarter 2010, and negative (502,166) in buildings delivered to the market in the quarter totaling 189,650 the third quarter 2010. square feet, with 327,581 square feet still under construction at The Class-C office market recorded net absorption of nega- the end of the quarter. tive (4,057) square feet in the second quarter 2011 compared to positive 33,111 square feet in the first quarter 2011, positive Absorption 72,375 in the fourth quarter 2010, and positive 23,931 in the Net absorption for the overall San Francisco office market third quarter 2010. was positive 809,306 square feet in the second quarter 2011. Net absorption for San Francisco’s central business district That compares to positive 311,436 square feet in the first quarter was positive 175,570 square feet in the second quarter 2011. 2011, positive 531,592 square feet in the fourth quarter 2010, That compares to positive 321,662 square feet in the first quarter and negative (289,047) square feet in the third quarter 2010. 2011, positive 293,796 in the fourth quarter 2010, and positive Tenants moving out of large blocks of space in 2011 include: 69,355 in the third quarter 2010. Sedgwick, Detert, Moran & Arnold LLP moving out of 195,805 Net absorption for the suburban markets was positive square feet at One Market; Bank of America moving out of 633,736 square feet in the second quarter 2011. That compares 172,815 square feet at 1455 Market St; and O’Melveny & Myers to negative (10,226) square feet in first quarter 2011, positive LLP moving out of 113,536 square feet at Two Embarcadero 237,796 in the fourth quarter 2010, and negative (358,402) in Center. the third quarter 2010. Tenants moving into large blocks of space in 2011 include: Salesforce.com, Inc. moving into 260,519 square feet at The Vacancy Landmark @ One Market; Del Monte Foods moving into The office vacancy rate in the San Francisco market area 152,917 square feet at One Maritime Plaza; and Sephora USA, decreased to 13.2% at the end of the second quarter 2011. The Inc. moving into 110,588 square feet at First Market Tower. vacancy rate was 13.6% at the end of the first quarter 2011, The Class-A office market recorded net absorption of posi- 13.8% at the end of the fourth quarter 2010, and 14.0% at the tive 690,830 square feet in the second quarter 2011, compared end of the third quarter 2010. Vacancy Rates by Class 1997-2011 A B C Total Market 25% 20% te 15% Ra ncy 10% Vaca 5% 0% 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q Source: CoStar Property® D THE COSTAR OFFICE REPORT ©2011 COSTAR GROUP, INC. ©2011Absorption COSTAR GROUP, INC. & Deliveries THE COSTAR OFFICE REPORTU.S. Vacancy Comparison 1 Past 8 Quarters Past 8 Quarters Net Absorption Deliveries San Francisco United States 1.0 16.0% 0.81 0.8 14.0% 0.6 0.53 12.0% 0.31 0.4 0.27 0.19 0.19 te 10.0% 0.2 0.11 0.09 0.03 0.04 0.02 0.00 Ra 0.0 8.0% ncy Millions SF (0.2) Vaca 6.0% (0.4) (0.32) (0.29) (0.43) 4.0% (0.6) 2.0% (0.8) (1.0) (0.90) 0.0% 2009 3q 2009 4q 2010 1q 2010 2q 2010 3q 2010 4q 2011 1q 2011 2q 2009 3q 2009 4q 2010 1q 2010 2q 2010 3q 2010 4q 2011 1q 2011 2q Source: CoStar Property• Source: CoStar Property• SAN FRANCISCO – MID-YEAR 2011 MID-YEAR 2011 – SAN FRANCISCO San Francisco Office Market San Francisco Office Market OVERVIEW Class-A projects reported a vacancy rate of 13.2% at the end end of the fourth quarter 2010 and 2,116,188 square feet at the of the second quarter 2011, 14.0% at the end of the first quarter end of the third quarter 2010. 2011, 14.3% at the end of the fourth quarter 2010, and 14.9% San Francisco’s Class-A projects reported vacant sublease at the end of the third quarter 2010. space of 1,061,183 square feet at the end of second quarter 2011, Class-B projects reported a vacancy rate of 16.0% at the end down from the 1,107,371 square feet reported at the end of the of the second quarter 2011, 16.1% at the end of the first quarter first quarter 2011. There were 1,258,405 square feet of sublease 2011, 16.1% at the end of the fourth quarter 2010, and 15.9% space vacant at the end of the fourth quarter 2010, and 1,645,537 at the end of the third quarter 2010. square feet at the end of the third quarter 2010. Class-C projects reported a vacancy rate of 5.5% at the end Class-B projects reported vacant sublease space of 449,401 of the second quarter 2011, 5.5% at the end of first quarter 2011, square feet at the end of the second quarter 2011, down from the 5.7% at the end of the fourth quarter 2010, and 6.0% at the end 524,451 square feet reported at the end of the first quarter 2011. of the third quarter 2010. At the end of the fourth quarter 2010 there were 423,325 square The overall vacancy rate in San Francisco’s central business feet, and at the end of the third quarter 2010 there were 456,540 district at the end of the second quarter 2011 decreased to 12.8%. square feet vacant. The vacancy rate was 13.0% at the end of the first quarter 2011, Class-C projects reported increased vacant sublease space 13.4% at the end of the fourth quarter 2010, and 13.7% at the from the first quarter 2011 to the second quarter 2011. Sublease end of the third quarter 2010. vacancy went from 11,295 square feet to 16,265 square feet dur- Vacancy Rates by Class 1997-2011 The vacancy rate in the suburban markets decreased to ing that time. There was 17,441 square feet at the end of the A B C13.7%Total in Marketthe second quarter 2011. The vacancy rate was 14.4% fourth quarter 2010, and 14,111 square feet at the end of the at the end of the first quarter 2011, 14.3% at the end of the fourth third quarter 2010. 25% quarter 2010, and 14.3% at the end of the third quarter 2010. Sublease vacancy in San Francisco’s central business district stood at 566,765 square feet at the end of the second quarter Largest Lease Signings 20% 2011. It was 666,252 square feet at the end of the first quarter The largest lease signings occurring in 2011 included: the 2011, 743,428 square feet at the end of the fourth quarter 2010, 1,000,122-square-foot lease signed by Facebook at the new te 15% and 1,103,403 square feet at the end of the third quarter 2010. Ra Facebook Campus in the San Mateo South County market; the Sublease vacancy in the suburban markets ended the sec- ncy 205,903-square-foot lease signed by Twitter at Market Square in 10% ond quarter 2011 at 960,084 square feet. At the end of the first Vaca the SF Downtown South market; and the 192,998-square-foot quarter 2011 sublease vacancy was 976,865 square feet, was deal signed by Dream Works, Inc. at Pacific Shores Center - Bldg 955,743 square feet at the end of the fourth quarter 2010, and 5% Nine in the San Mateo South County market. was 1,012,785 square feet at the end of the third quarter 2010. Sublease Vacancy 0% Rental Rates The amount of vacant sublease space in the San Francisco 1997 1997 1998 1998 1999 1999 2000 2000 2001 2001 2002 2002 2003 2003 2004 2004 2005 2005 2006 2006 2007 2007 2008 2008 2009 2009 2010 2010 2011 The average quoted asking rental rate for available office 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q 3q 1q market3q 1q decreased3q 1q 3q to 1,526,8491q 3q 1q square3q 1q feet3q by 1qthe 3qend 1qof the sec- space, all classes, was $31.75 per square foot per year at the end ond quarter 2011, from 1,643,117 square feet at the end of the Source: CoStar Property® of the second quarter 2011 in the San Francisco market area.