San Francisco Bay Area Office Market Overview: Q1 2016

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By: Amber Schiada, Vice President & Director of Research

Despite concerns with global market volatility, Bay Area office markets started 2016 on a solid basis. We’ve included a review of the Q1 highlights for each of the five Bay Area markets below which tracked in our recent Office Outlook report.



  • Total sublease space on the market in the city approaches levels last seen in 2009, but at 2.3MSF is still way below the historic high set in 2001 (almost 9MSF). JLL reports that interest in sublease space is quite strong and with costs to build out new space running between $130 and $140 per s.f., sublease space may be the best deal on the market right now for some tenants needing to expand their physical footprint in San Francisco.
  • Despite the rise in sublease space, asking rents for the overall office market rose in the quarter by $3.30 per SF indicating that landlords remain confident, for the time being, that demand will continue.  (They may be right; JLL is currently tracking 9MSF of demand.)
  • The San Francisco market also saw total net absorption of 153,000 s.f. in the first quarter, driven by a few large move-ins by LinkedIn (partial move-in at 222 2nd Street) and Salesforce (moving into 6 floors at 350 Mission).


  • Oakland’s Class A office market saw rents hit $51 per s.f., a new high for the market, and rents continue to rise due to increased demand and limited supply.  Office rents have grown almost 34% in the last 12 months alone.
  • JLL anticipates announcements for new development of Class A space to begin to this year if the expansionary trend into the East Bay from San Francisco continues (about 300,000 s.f. in the last quarter).  The cost of new Class A construction in Oakland is around $750 per SF (including land), indicating that rents need to be around $55 per SF to support new projects.
  • JLL is tracking 2M SF of demand for office space in Oakland and the surrounding submarkets, 75% of which is targeting the CBD areas of Downtown, Lake Merritt-Uptown and Jack London Square.


  • Office rents have increased most in submarkets close to transit, such as Pleasant Hill’s BART submarket (14%) and downtown Walnut Creek (8.3%), and with BART ridership in the East Bay up 31% in the last five years, the trend toward transit-oriented office space is only likely to deepen.
  • Of the 515,000 s.f. of demand being tracked by JLL in the I-680 corridor market currently, 60 percent is focused on submarkets close to BART stations.
  • Like Oakland, there is currently no new Class A office construction underway in the I-680 market.


  • There is an ongoing migration of tenants from higher priced office markets like Palo Alto and Mountain View to a tightening mid-Peninsula market, notably the South County region.
  • The mid-Peninsula market has been dominated by large space users (Google, Facebook) acquiring multi-tenant properties that they plan to occupy in three to five years.  As they occupy this space, current tenants will be forced to vacate, creating additional demand in the mid-Peninsula market.
  • New construction is starting to take hold, especially in Redwood City and San Mateo, but preleasing is significant (33%) in the 1.2MSF now being built and developers are taking a tougher look at tenant credit.


  • In contrast to the mid-Peninsula, half of the market’s net absorption was attributable to large tech companies pre-leasing new development and these users have slowed down acquisitions in the Valley, thereby leasing more than they are buying. Occupancy gains in the first quarter almost matched Q4 2015’s 1MSF.  Despite stock market and valuation concerns, companies driving the Valley’s CRE market are likely well-positioned to weather volatility in the overall business economy.
  • N San Jose and downtown San Jose are starting to see additional overspill activity from full floor tenants looking to avoid the high rates in core submarkets for office space. More landlords are placing capital towards renovating outdated R&D space into newer generation workplaces while Downtown San Jose is slowing growing into a work/live/play environment.
  • The Valley’s construction pipeline continues to be robust despite a more challenging development outlook in markets like Palo Alto and Mountain View. There is 3.5MSF of Class A office under construction throughout the Valley and preleasing is close to 50%.

For more in depth coverage of these markets or to view data for submarkets within each of these markets, visit JLL’s San Francisco, Silicon Valley or East Bay research sites.

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