Northern California office market overview – Q3 2017

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October 25, 2017

By: Susan PersinResearch Director, Northern California, JLL


  • Positive absorption returns to San Francisco as large tenants move in to pre-leased space.
  • About 3.6 MSF of new space to be added to market by Q1 2018 with delivery of Salesforce Tower and 350 Bush. However, of this 3.6 MSF, 77% is already leased.
  • Total vacancy marketwide is 8.2 percent (7 percent direct vacancy). Average rents marketwide (all submarkets, Class A-C buildings) are $74.22 PSF with Class A rents in the financial district (CBD) topping $75.34 PSF.
  • Outlook: Vacancy rate for Class A office expected to rise as major new developments deliver with large block availability but also look for a continued uptick in average rents in Class A as new projects will command some of the highest average asking rents the city has seen. 


  • Rising southern Marin office rents are pushing tenants towards San Rafael, Novato, and Petaluma, while several large tenants in Sonoma County are due to ink before year end.
  • The Napa/Solano markets have similar demand characteristics to neighboring Marin/Sonoma, with tenants priced out of Downtown Napa into South Napa.
  • Third quarter overall leasing activity in the North Bay was moderate.
  • After October’s fires, companies are gearing up to support the rebuilding effort in Sonoma and Napa counties. They are looking to lease and immediately occupy satellite office space, which will cause North Bay vacancies to decline.
  • Outlook: The recent North Bay wildfires and substantial loss of structures have construction related industries shopping for small offices in Sonoma and Napa Counties. Most of these requirements are small (less than 1500 sf) and lease terms from month to month to 2 years. The impact on the residential and retail sectors is far more immediate, because most of the lost structures were residential with some retail structures as well. Demand for residential rentals has skyrocketed, and we expect rents to rise because of high demand from residents displaced by the fires. The negative impact on tourism should be short-lived. Local businesses are ramping back up and unaffected wineries were able to harvest their grapes in time. Though hotels were destroyed, two new hotels are currently under construction while the Graton Casino Hotel is expanding.


  • Solid tenant demand and strong absorption, led by Folsom, Highway 50 corridor and South Natomas markets, push total market vacancy down to 12.2 percent.  (In 2013, vacancy topped 19 percent.)
  • Downtown office demand is up and vacancy has fallen 2.8 percent since 2016. Tenants are no longer gravitating only to the Capitol submarket. The area around the new arena and DOCO is attracting more office users.
  • Office demand is spurred by regional employment, which is up 1.7 percent in 2017, with education and health services leading the way.
  • Outlook:  Expect the vacancy rate to continue its downward track in the next few quarters as some large tenants move in to space they leased earlier this year. 

I-680 Corridor (East Bay) OFFICE MARKET, Q3 2017

  • Investment activity is driving much of the momentum in submarkets throughout the I-680 corridor, as institutional buyers look to trade for suburban “transit-oriented” office buildings, especially those close to BART stations.
  • With no new construction underway and positive net absorption in the South 680 corridor, the focus is on the northern sector of the market, where recent blocks of space have opened up that may attract large users.
  • Outlook: Average asking rents (currently $35.52 PSF) have risen steadily over the past five years and are expected to maintain an upward trend for the foreseeable future.


  • A tightening Silicon Valley market with very few available spaces under 10,000 SF and high rents is forcing smaller users northward to the mid-Peninsula, and this is pushing up the rate of absorption in markets like Menlo Park, Redwood City and San Mateo, which have strong transit links.
  • Total vacancy is currently around 11.2 percent and rental rates, currently averaging $59.29 PSF, are on a steady upward path.
  • Outlook:  Market fundamentals are giving developers the confidence to build, and almost 1.0MSF of new development is currently underway.  Much of this space has commitments from tenants, so more new construction could get underway in this market.


  • With more than four million s.f. of new Class A space under construction, there are concerns in the broader market, but 3Q net absorption was positive, as several major tenants took up space in newly completed campuses. Several large corporate occupiers are also looking for space in the market.
  • Average asking rents throughout the Valley are $47.64 PSF.
  • Outlook: strong occupancy growth projected through the end of the year


  • The rent gap between Class A ($58.56) and renovated Class B ($57.12) buildings has narrowed substantially in Oakland’s CBD market, thanks to ongoing demand and a lack of availability in existing Class A product.  Total CBD vacancy is just 6.2 percent .
  • Investor interest in Oakland is at an all-time high with six major office buildings trading hands so far this year. Uptown Station, Uber’s building, is also on the market and generating headlines.
  • Outlook: Tenants looking at the CBD market will get some relief over the next 24 months as about one million square feet of new space comes online.

  About me

“Is it a good time to buy a house?”. That’s the question I’m most often asked when I tell people what I do. My answer is informed by more than 20 years of experience analyzing supply and demand conditions in real estate markets and preparing market forecasts for all types of properties, ranging from residential to office, industrial, and retail. The numbers are critical, but telling the story behind the numbers, whether to IPO investors, a bank’s investment committee, or through social media, is what I find most interesting and is an area in which I have been told that I excel.

You can reach me directly via email at or via phone at +1 (415) 395-4924.

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