San Francisco Office Rents Continue to Rise; Non-CBD Heating Up

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A new report from CompStak reveals that the San Francisco office market continued to heat up in 2014, with 17 deals over 100,000 square feet and rents across the city gaining 12.6% since 2013.

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It comes as no surprise that the region’s largest tech companies continue to expand their operations within San Francisco, and new companies choose the city for their first offices.

San Francisco’s tech-driven economy continued its multi-year uptrend in 2014. Encouraging growth in the broader economy has supported the local commercial real estate boom. A new report from CompStak sheds light on just how fast office rents are growing in the Fog City.

Starting rents for office properties saw a boost of 12.6% year-over-year, closing the year at $51.35 per square foot (PSF), compared with a 10% Y-o-Y increase in 2013. 2014 also saw 17 transactions over 100,000 SQFT, compared with only eight transactions of that magnitude in 2013. Though rents have risen across all of San Francisco, some areas are heating up faster than others.

The CBD, comprised of the North and South Financial Districts, surged to just under $54 PSF in 2014, and in the fourth quarter, rents reached $57 PSF, an 8% gain over 2013. As a result, office tenants with expiring leases looking to renew in the CBD will face significant rent increases. The average current rate for full service CBD leases expiring in 2015 is $39 PSF, $18 PSF lower than the average starting rent in Q4. CBD concession packages have remained stable, having lost only 1% since 2012.

As tech startups have come to prefer space in San Francisco over the South Bay, Non-CBD rents have grown even faster, with a 15% rise in 2014 and a total increase of 87% over the past five years. Owners of buildings outside the CBD experienced faster growth than in 2013, and at a greater rate than those within the CBD. Concession packages, which were as high as 8% of the deal value in 2010, have shrunk to about 5% in 2014, demonstrating that bargaining power lies with landlords.

“Perhaps no market is as sensitive to the demands of the employee talent pool as San Francisco. Tech companies complete fiercely for top technical talent, and these companies are willing to move their operations where the talent pool chooses to live. It comes as no surprise that the region’s largest tech companies continue to expand their operations within San Francisco, and new companies choose the city for their first offices,” said CompStak CEO Michael Mandel.

San Francisco’s broader economy will likely continue to bolster the city’s prosperous office market throughout 2015. Many technology tenants involved in last year’s large-scale transactions are poised to see further increases in growth and hiring in 2015. However, it is important to note that the tech-tenant rich San Francisco market could be particularly vulnerable to any fluctuations in the macro economy.

For more information about this research or about CompStak’s commercial lease records and analytics, visit CompStak.

About CompStak
CompStak is the world’s first comprehensive database of commercial lease comparable data. We gather our data from our users, a committed community of commercial real estate brokers, appraisers, and researchers. Our analysts review all of the data we receive to ensure data integrity and quality.

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Danny Shachar
CompStak
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