MARKETVIEW

San Francisco Office, Q2 2015

Five year streak broken
Vacancy Rate

5.7%

Lease Rate

Net Absorption

$67.99 PSF

144K SF

Under Construction

4.5 MSF

*Arrows indicate change from previous quarter.

Figure 1: Total Vacancy vs. Net Absorption

Vacancy Rate
(%)

Sq. Ft.
(000’s)

1,000
500
0
Net Absorption
(500)

Vacancy Rate

Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
2011 2011 2011 2012 2012 2012 2012 2013 2013 2013 2013 2014 2014 2014 2014 2015 2015

18
15
12
9
6
3
0

Source: CBRE Research, Q2 2015.
Market fundamentals have consistently moved in
one direction over the past five years. Rents have
increased every quarter since Q2 2010 and are now
122% higher, including a 3.2% rise over last quarter
to $67.99. Demand has followed this same trend,
with net absorption remaining positive and posting
144,316 sq. ft. of additional occupancy this quarter.
These trends could not prevent a confluence of
traditional tenants giving up space, new
construction deliveries and sublease space additions
from interrupting the downward vacancy trend,
which went up by 20 basis points (bps) to 5.7%.
Very low vacancy and limited available space has
restrained fulfillment of demand and is likely to
result in less consistent statistical movements
contingent on the timing of spaces newly marketed,
vacated or leased. This low-supply, high-demand
condition has correspondingly restrained leasing
activity, which was down slightly quarter-overquarter, and made sublease space additions seem
more meaningful than analysis shows.
The addition of several notable sublease spaces has
fueled speculation of impending market weakness.
Q2 2015 CBRE Research

Analysis shows the level of sublease space
availability to be up and down over the past 12
months, with no clear breakout from its 1.3 million
sq. ft. trailing 18-month moving average.
Understanding the reason why firms are subleasing
space provides valuable insight into market
dynamics. The 20 largest sublease spaces show that
non-tech tenants are subleasing because they are
downsizing or leaving the city entirely, which also
applies to direct space. Tech firms are subleasing
primarily as a result of rapid growth, marketing
space that’s either become too small or being
“banked” short term for future use to avoid the
outgrowth problem. Analysis also shows that good
quality sublease space ready for occupancy is being
leased quickly.
Demand remains quite strong and supply is unable
to keep pace. The 1.5 million sq. ft. of new
construction deliveries to come in 2015 will do little
to rebalance the market as 93% of it is pre-leased.
Thus, average asking rates in the CBD breaking the
$70 mark for the first time since the dot-com era
should not be too surprising.

© 2015 CBRE, Inc.  

1

 M A R K E T V I E W SAN FRANCISCO OFFICE

Figure 2: Total Office Market Statistics

Submarket

Net
Rentable
Area

Total
Vacancy
(%)

Total
Availability
(%)

Average
Asking
Rate ($)

Q2
Net
Absorption

YTD
Net
Absorption

Financial District

26,193,031

7.5

12.5

70.06

(2,106)

75,250

19,654,154

7.8

12.8

71.71

61,038

50,862

21,927,089

4.9

8.0

72.01

161,379

407,448

18,174,881

4.8

8.3

73.16

192,235

351,634

5,221,724

3.9

7.0

59.13

7,794

63,503

1,928,125

4.2

5.6

62.07

3,058

(11,879)

6,677,205

4.7

6.2

68.27

(34,416)

67,858

Class A

2,633,196

3.7

6.6

73.13

42,973

93,958

Yerba Buena

3,369,500

6.9

10.0

66.72

(129,193)

(60,787)

Class A

1,279,859

2.6

2.6

68.27

13,626

24,527

3,453,649

4.3

6.0

59.01

227,294

216,355

1,633,952

8.2

11.2

64.25

211,660

211,660

2,510,383

3.6

6.7

80.00

(68,518)

(91,596)

Class A

2,510,383

3.6

6.7

80.00

(68,518)

(91,596)

Potrero Hill

1,939,358

4.1

7.7

57.78

(19,751)

18,996

Class A

257,109

4.9

18.4

60.28

(12,653)

(5,203)

1,886,302

7.7

8.4

47.27

4,969

39,257

Class A

609,236

10.3

11.6

55.88

2,479

5,803

Union Square

3,694,923

3.6

7.0

58.80

(3,136)

43,799

Class A

335,200

1.8

3.7

61.25

(4,285)

(4,285)

76,873,164

5.7

9.2

67.99

144,316

780,083

49,016,095

6.0

9.8

71.70

441,613

625,481

Class A
South Financial District
Class A
N. Waterfront & Jackson Sq.
Class A
South of Market

South of Market West
Class A
Mission Bay / China Basin

Civic Center & Van Ness

San Francisco Office Market
Class A
Source: CBRE Research, Q2 2015.

Figure 4: Top 25 Leases of the Quarter by Industry

Figure 3: Top Leases / Top Sales of the Quarter

Lease (Tenant)

Address

Total SF

Stripe

510 Townsend St

300,000

Orrick, Herrington & Sutcliffe LLP

405 Howard St

168,195

FitBit

199 Fremont St

163,628

Sale (Buyer)

Address

Total SF

Tishman Speyer

160 Spear St

295,806

Stockbridge Real Estate

110 Sutter St*

43,103

Paragon Real Estate Investments

580 Market St

33,432

Source: CBRE Research, Q2 2015.
Q2 2015 CBRE Research

*Q1 sale.

7%

5%

7%
1.5 MILLION
SQ. FT.

19%

Technology

Legal

Financial

62%

Other

Business Services

Source: CBRE Research, Q2 2015.
© 2015 CBRE, Inc.  

2

 M A R K E T V I E W SAN FRANCISCO OFFICE
LEASE RATES

Average asking rates climbed by 3.2% quarter-overquarter and 14.7% year-over-year to $67.99 for Q2
2015. The rate of increase moderated from 4.2% in
Q1 2015, but asking rates are still on track to break
$70 per sq. ft. before year-end 2015, even if average
rent increases continue to taper. Class A asking rates
in the CBD have surpassed $72 per sq. ft., while
space in Mission Bay/China Basin is commanding
an average rate of $80 per sq. ft.

Figure 5: Lease Rates

Asking Rate
($/SF)
80
70

$71.70
$63.18

60
50
40
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

Source: CBRE Research, Q2 2015.

N E T A B S O RP TI ON

Positive net absorption of 144,316 sq. ft. could not
keep vacancy from rising in Q2 2015. The occupancy
of the recently completed 1 Tenth Street added
338,000 sq. ft. of absorption to the market, but a
number of mostly non-tech tenants either
downsized or left the market, lowering that total by
194,000 sq. ft. This contributed to the rise in
marketwide vacancy and brought the year-to-date
total to 780,083 sq. ft. Looking to the remainder of
the year, pre-leased construction alone could add as
much as 1.4 million sq. ft. of net absorption, should
occupancy occur as scheduled.

Class A
Class B

Figure 6: Net Absorption
Sq. Ft.
(000’s)
1,000
750
500
250
0
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

Source: CBRE Research, Q2 2015.
Figure 7: Vacancy & Availability

V A C A N C Y & A V A I L A BI L I TY

Marketwide vacancy was up 20 bps to 5.7% as of Q2
2015, marking the first time in five years that vacancy
has not declined quarter-over-quarter. Total
availability declined by 40 bps to 9.2%. A few large
move-outs caused vacancy to increase substantially in
certain submarkets including Yerba Buena, which
saw an increase of 380 bps to 6.9%. Sublease
availability remains relatively steady at 1.3 million sq.
ft., while total availability in the CBD is 10.4%.
C O N S TRU C TI ON C O M PL ETI ONS

The new building at 1 Tenth Street commenced
occupancy during second quarter, marking the first
construction completion of the year. One new
planned project at 510 Townsend was 100% preleased during the quarter. There were no new
construction starts, though both the Uber
headquarters and Exchange on Sixteenth projects in
Mission Bay are expected to commence
construction during third quarter. There is currently
4.5 million sq. ft. under construction and 2.0
million sq. ft. pending construction.
Q2 2015 CBRE Research

%
20

Total Vacancy Rate
Total Availability Rate

15

9.2%

10

5.7%
5
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

Source: CBRE Research, Q2 2015.
Figure 8: Construction Completions
Sq. Ft.
(000’s)
2,000
1,500
1,000
500
0
2009

2010

2011

2012

2013

2014

2015 YTD

Source: CBRE Research, Q2 2015.

© 2015 CBRE, Inc.  

3

 M A R K E T V I E W SAN FRANCISCO OFFICE

S U B M A RK E T M A P

CONTACT

Matt Farrell
Senior Research Analyst
101 California Street, #4400
San Francisco, CA 94111
415 772 0104
matt.farrell@cbre.com
Erin Hepp
Research Analyst
101 California Street, #4400
San Francisco, CA 94111
415 772 0264
erin.hepp@cbre.com
Amanda Fuller
Researcher
101 California Street, #4400
San Francisco, CA 94111
415 772 0265
amanda.fuller@cbre.com

D E F I N I TI ON S

Average Asking Rate Direct Annual Lease Rates, Full Service Gross. Availability All
existing space being marketed for lease. Total Vacancy Rate Direct Vacancy +
Sublease Vacancy. CBD Central Business District; consists of Financial District and
South Financial District submarkets.

To learn more about CBRE Research, or to access
additional research reports, please visit the Global
Research Gateway at
www.cbre.com/researchgateway.

S U R V E Y C R I T ER I A

CBRE’s market report analyzes existing single- and multi-tenant office buildings that
total 10,000+ sq. ft. in downtown San Francisco, excluding owner-occupied
buildings. CBRE assembles all information through telephone canvassing, third-party
vendors, and listings received from owners, tenants and members of the commercial
real estate brokerage community.

Disclaimer: Information contained herein, including projections, has been obtained from sources believed to be reliable. While we do not doubt its accuracy,
we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to confirm independently its accuracy and completeness.
This information is presented exclusively for use by CBRE clients and professionals and all rights to the material are reserved and cannot be reproduced without prior
written permission of CBRE.