Another strong year of net absorption predicted for San Francisco in 2015

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By: Amber Schiada, Vice President / Director of Research

san-francisco_1120San Francisco recorded four years of positive net absorption in excess of one million square feet from 2011 through 2014 totaling more than six million square feet—the longest streak on record since the period from 1987 to 1990. Additionally, since Q3 2010, the market’s recorded 17 consecutive quarters of positive net absorption totaling more than 6.7 million square feet.

These numbers are nothing to sneeze at, for sure. It’s no secret that San Francisco has been one of the most active office markets since the end of the last recession. Much of this activity has been driven by strong tech-industry demand. In fact, since Q1 2010, about 70 percent of all net absorption has been driven by tech tenants moving into and expanding within the market.

How long can this last? We fully expect to see another strong year for net office take up in 2015. Given the number of large leases inked in 2014, there will likely be at least another one million square feet of net absorption in 2015. Linkedin moving into 222 Second Street, Salesforce moving into 350 Mission Street, and Google moving into 1 Market Plaza will account for more than 600,000 square feet of positive net absorption alone.

 

Five consecutive years of net absorption above one million square feet would be a first for the city since at least 1980. The market came close to a five-year streak in 1980 through 1984, just missing the record by about 50,000 square feet in 1984 when only 950,000 square feet of positive net absorption was recorded.

Tech tenants are projected to account for 70 percent of net absorption in 2015, continuing the trend from the past four years. As you can see in the chart below, the remaining top four industry contributors to net absorption have been dwarfed by the tech industry’s demand dominance.

While this strong demand trend is great news for landlords, this is creating some heartache for tenants. The best defense in a competitive market with rising rents is a smart real estate strategy.

 2015 Estimated Net Absorption by Industry

88 Percent of Total Net Absorption Expected to be Driven by Tech

2015 estimated net absorption by industry

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