Leasing Activity Remains Strong > VACANCY the Overall Vacancy Rate in the City This Quarter Edged Madison Capital Purchased Down 20 Basis Points to 6.9 Percent
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Research & Forecast Report SAN FRANCISCO | OFFICE MARKET Q3 | 2017 Leasing Activity Remains Strong > VACANCY The overall vacancy rate in the City this quarter edged Madison Capital purchased down 20 basis points to 6.9 percent. The direct vacancy decreased 150 Post Street for over 40 basis point to 6.0 percent while the vacant sublease rate nudge $69 million ($655 per up 10 basis points to 0.9 percent during the third quarter but remains square foot) Facebook secures their first significant City well below the high-water mark of 5.1 percent posted in 2002. The address taking all the North Financial and Jackson Square submarkets experienced the office space at 181 largest decline in vacancy, decreasing 40 basis points to 6.0 percent Fremont Street and 250 basis points to 2.7 percent respectively. There’s nearly 2.2 million square feet scheduled for delivery next quarter, while over WeWork moved into over 86 percent has been preleased this may translate into a temporary 60,000 square feet at 650 increase in vacancy until tenants move into their spaces. California Street > LEASING VOLUME Leasing activity in San Francisco continued to be robust with approximately 2.4 million square feet of transactions recorded. This is the second consecutive quarter in which leasing COLUMBUS activity surpassed the 10-year historical quarterly average of 1.7 million square feet. Demand for space in the City remains strong and doesn’t look to be cooling anytime soon. San Francisco continued to see multiple significant deals signed during the third quarter with three over 100,000 square feet. The largest lease signed in the past EMBARCADERO three years closed this quarter with Facebook leasing all the office space at 181 Fremont Street, Airbnb leased 290,000 square feet at GREEN 650 Townsend Street and Amazon secured nearly 176,000 square feet at 525 Market Street. BROADWAY GRANT > ABSORPTION San Francisco posted nearly 169,000 square feet of TAYLOR WASHINGTON LEAVENWORTH HYDE positive net absorption as the third quarter came to an end. The North V A N N E S S Financial and Jackson Square submarkets were primarily responsible CALIFORNIA for the growth in net absorption posting over 66,000 square feet SPEAR 80 and nearly 57,000 square feet, respectively. Tenant demand remains BUSH FREMONT strong, even with Facebook securing their 412,000-square foot space, the market currently has over 5.6 million square feet of office space 1 S T MARKET requirements involving 210 tenants in the market and twelve of those requirements are over 100,000 square feet of space. GEARY POWELL 3 R D > RENTS Rents in the City continued to rise over the third quarter MISSION with overall citywide weighted rents climbing up 8.8 percent to 5 T H $80.59 per square foot. Key contributors to the increase experienced FOLSOM over the past 90 days are five large deals that are $87 or higher. BRYANT Overall Class A weighted rents grew 9.4 percent to $84.34 per square 7 T H BRANNAN foot. The Financial District overall weighted Class B rents had the 4 T H TOWNSEND HAYES largest increase this quarter growing 23 percent to $84.13 per square 80 KING foot. Across the board all non-weighted rents also experienced rent 1 0 T H growth. 3 R D TERRY A FRANCOIS Market Indicators 7 T H Relative to prior period Q3 2017 2017 Forecast 4 T H 101 VACANCY OWENS NET ABSORPTION 1 6 T H 280 CONSTRUCTION 80 WEIGHTED RENTAL RATE NON-WEIGHTED RENTAL RATE 1 9 T H SALES VOLUME SALES PRICES Rental Rates San Francisco – Office Rents - Q3 2017 % OVERALL Leasing activity in San Francisco continues 3Q '17 3Q '17 3Q '17 2Q '17 MARKET QUARTERLY OVERALL DIRECT SUBLEASE OVERALL to be one of the healthiest in the country. CHANGE The strength of the market can be seen with All Markets $80.59 $81.42 $69.14 $74.08 8.8% overall weighted rents climbing up from All Markets: Class A $84.34 $85.75 $67.22 $77.07 9.4% $74.08 to $80.59 per square foot. Large All Markets: Class B $75.83 $76.28 $65.32 $74.28 2.1% chucks of space leased at properties currently under construction are one of the contributors Financial District: Class A $85.04 $86.33 $69.30 $77.38 9.9% to the rent growth for both weighted and Financial District: Class B $84.13 $84.97 $74.55 $68.42 23.0% non-weighted rents in the City. In the SOMA SOMA Overall $78.88 $78.95 $68.60 $80.95 -2.6% submarket there was a slight decline in Source: Colliers International Note: Weighted Average Rents weighted rents from a record high of $80.95 to $78.88 per square foot this quarter, but year over year weighted rents in SOMA have grown 10.2 percent. 1,700,000 20.0% 1,200,000 15.0% 10.0% Absorption & Vacancy 700,000 The North Financial District and Jackson 5.0% Square submarket fueled the largest 200,000 occupancy gains posting over 66,000 and 0.0% nearly 57,000 square feet of positive net absorption, respectively. In the North Financial -300,000 District, WeWork moved into nearly 61,000 square feet at 650 California Street, Upgrade -800,000 occupied over 33,000 square feet at 275 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q 1Q 2Q 3Q Battery Street and Wikimedia occupied over '07 '07 '07 '07 '08 '08 '08 '08 '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12 '13 '13 '13 '13 '14 '14 '14 '14 '15 '15 '15 '15 '16 '16 '16 '16 '17 '17 '17 19,000 square feet at 1 Montgomery Street. Source: Colliers International Vacancy Net Absorption Helping to post positive net absorption in the Jackson Square submarket, HealthTap move into over 20,000 square feet at 755 Sansome Street and Brightidea occupied nearly 9,900 square feet at 560 Davis Street. $2.9B San Francisco Sales Activity (Billions) # Transactions in office $10.0 investment sales 80 YTD 2017 $9.0 68 70 Investment Volume 68 $8.0 Office assets in the San Francisco market 57 60 continue to be highly sought-after by both $7.0 53 international and local investors. While San Francisco investment sales volumes slowed 50 50 a bit this quarter, primarily due to lack of $6.0 45 product on the market, total year-to-date investment sales volumes of nearly 2.9 billion $5.0 38 38 40 36 were posted and is mirroring the year-to-date 32 sales activity posted during the third quarter $4.0 30 in 2016. Investment sales activity was evenly 25 23 spread across the submarkets throughout the $3.0 City. The largest deal this quarter, 150 Post 18 [VALUE] 17 20 Street, closed in August to Madison Capital 14 $2.0 10 for over $69.3 million or ($655 per square 8 foot). Additionally, Shorenstein purchased 10 $1.0 901 Battery Street for $55 million or ($612 per $0.3 square foot) from The Swig Company. $1.9 $0.4 $0.1 $0.5 $1.8 $3.5 $3.2 $9.8 $0.7 $1.5 $2.8 $6.0 $2.4 $6.0 $3.7 $4.6 $2.9 $0.0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 YTD Source: Colliers International 2 San Francisco Research & Forecast Report | Q3-2017 | San Francisco / Office Market | Colliers International Major Office Lease Transactions - Q3 2017 ADDRESS TENANT SIZE TYPE SIGNED DATE CLASS 181 Fremont Street Facebook (Instagram) 412,234 New Sep-17 A 650 Townsend Street Airbnb 290,000 New Jul-17 B 525 Market Street Amazon 175,727 New Jul-17 A 153 Townsend Street Ancestry.com 92,541 Renewal/Expansion Sep-17 A 415 Mission Street WeWork 76,401 New Aug-17 A 44 Montgomery Street WeWork 73,000 New Aug-17 A 645 Harrison Street Planet Labs* 64,121* New Sep-17 C 315 Montgomery Street LendingHome 60,212 New Aug-17 B 185 Berry Street - Wharf Lyft 57,692 New Sep-17 A 45 Fremont Street Gensler 54,163 New Sep-17 A 989 Market Street Zendesk 51,810 Renewal/Expansion Aug-17 B 560 Mission Street Delta Dental 45,000 New Jul-17 A *Some of the leased space was Production/Distribution/Repair (PDR) Major Office Sale Transactions - Q3 2017 ADDRESS SELLER BUYER SQ.FT. SALES DATE CLASS SALE PRICE PRICE/SQ.FT. 222 2nd Street (Recapitalization) JP Morgan Chase Tishman Speyer 452,418 Sep-17 A $542,900,000 $1,200 150 Post Street Federal Realty Investment Trust Madison Capital 105,833 Aug-17 B $69,330,000 $655 901 Battery Street The Swig Co. Shorenstein 89,904 Sep-17 A $55,000,000 $612 3180 Eighteenth Street Bridgeton Holdings American Realty Advisors 37,104 Jul-17 B $34,000,000 $916 665 Chestnut Street Thomas Fallows Sunhill Corporation 16,900 Jul-17 C $9,435,000 $558 San Francisco Development Pipeline Over 51 percent of the properties currently 1,600,000 1,400,000 under construction 1,200,000 have been 1,000,000 preleased. 800,000 600,000 400,000 200,000 0 Salesforce 1st & Mission - 250 Howard: 1800 Owens St Blocks 29- 1455 & 1515 3rd 181 Fremont 350 Bush 100 Hooper St 510 Townsend 501-505 (Transbay) 50 1st St/First Park Tower (Block 40)/The 32/Chase Street* Street St/500 Pine (N & S buildings) Street Brannan St Tower - 101 1st Street Tower Exchange @ 16th Center/Warrior Street St/415 Mission Arena St* PRELEASED VACANT 3 San Francisco Research & Forecast Report | Q3-2017 | San Francisco / Office Market | Colliers International Development Pipeline square feet come mid-October.