MARKETVIEW

San Francisco Peninsula Office, Q2 2015

Average asking rents reach
dot-com levels
Vacancy Rate

8.0%

Lease Rate

Net Absorption

$5.07 PSF

401,623 SF

Under Construction

1.8 MSF

*Arrows indicate change from previous quarter.

Figure 1: Total Vacancy vs. Net Absorption
Vacancy Rate
(%)

Sq. Ft.
(000’s)

1,000
750
500
250
0
(250)
(500)

Net Absorption

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.
The San Francisco Peninsula office market
regained considerable momentum during Q2
2015, posting 401,623 square feet (sq. ft.) of
positive net absorption. Central County
submarkets continued to attract leasing demand,
as the region accounted for 48.7% of Peninsula
occupancy gains during Q2 2015. This recent
trend can be attributed to organic growth of large
and mid cap companies local to the SF Peninsula
as well as supply-constrained South County
pricing acceleration driving demand north.
Technology tenants continue to take down a
majority of available office space in the southern
submarkets and has put sustained upward
pressure on asking rents. By the end of Q2 2015,
the market average asking rent crossed the $5.00
threshold for the first time since the dot-com era,
settling at $5.07 FSG.

sales volume is attributed to Equity Office
Properties’ 4.7 million sq. ft. partial portfolio sale
to Hudson Pacific Properties. With this
monumental $3.5 billion transaction, over 10% of
the SF Peninsula office market changed
ownership. Peninsula office product accounted
for 58% of the total deal footprint, but 73% of the
total value based on the estimated allocated cost
per building.
Vacancy dropped to 8.0% at the end of Q2 2015, a
full percentage point decrease quarter-overquarter. For the remainder of 2015, very little
vacant space is projected to come to market, either
as a result of new product deliveries or large-scale
move-outs. Overall market conditions on the
Peninsula are expected to stay extremely tight and
remain favorable to landlords for the foreseeable
future.

Investment sales also weighed heavily on market
dynamics in Q2, illustrating confidence in the
long-term strength of the market. The bulk of
Q2 2015 CBRE Research

© 2015 CBRE, Inc.  

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

Figure 2: Total Office Market Statistics

Submarket
Daly City/Brisbane
Class A
South San Francisco
Class A
San Bruno/Millbrae

Net
Rentable
Area

Total
Vacancy
%

Total
Availability
%

Average
Asking
Rate ($)

Q2
Net Absorption

YTD
Net
Absorption

1,562,009

33.6

35.0

3.20

(6,135)

(15,883)

1,053,612

46.4

48.3

3.52

(4,879)

(15,227)

2,939,021

11.6

16.7

3.15

79,105

235,797

2,421,784

12.0

17.9

3.35

81,156

236,873

1,779,752

5.1

9.2

3.49

(3,727)

(16,995)

6.7

7.5

3.75

0

0

Class A

705,493

Burlingame

2,507,633

7.9

8.3

2.83

10,912

21,094

Class A

758,479

12.4

13.2

3.40

12,615

24,313

North County

8,788,415

13.1

16.1

3.13

80,155

224,013

San Mateo

7,483,471

7.2

9.1

4.16

159,723

70,955

Class A

3,663,700

4.8

6.3

4.85

128,102

61,301

Foster City

3,186,628

11.7

14.4

5.25

(1,703)

(3,535)

Class A

2,710,390

13.5

16.8

5.50

(4,555)

(6,387)

1,455,507

4.7

19.0

3.20

(200)

(62,508)

796,570

5.1

31.2

3.55

(22,924)

(23,770)

7,212,627

8.3

13.0

5.14

16,439

(43,199)

Belmont/San Carlos
Class A
Redwood City/Redwood Shores
Class A

4,982,403

9.8

14.9

5.50

19,364

(33,372)

Central County

19,338,233

8.2

12.2

4.63

174,259

(38,287)

Menlo Park

5,175,184

3.1

4.5

6.56

84,843

71,079

Class A

1,585,225

5.4

8.0

9.25

9,063

(13,239)

6,907,494

4.7

5.9

7.65

62,366

66,101

Palo Alto/East Palo Alto
Class A

3,200,850

4.2

5.5

8.92

52,814

49,007

South County

12,082,678

4.0

5.3

7.18

147,209

137,180

40,209,326

8.0

11.0

5.07

401,623

322,906

21,878,506

10.1

14.0

5.63

270,756

279,499

SF Peninsula Office Market
Class A

Source: CBRE Research, Q2 2015.
Figure 3: Top Leases / Top Sales

Figure 4: Top 25 Leases by Industry

Lease (Tenant)

Address

Total SF

Netsuite

2955 Campus Dr, San Mateo

124,248

Imperva

3200 Bridge Pkwy, Redwood Shores

76,000

Veracyte

6000 Shoreline Ct, S. San Francisco

58,635

Sale (Buyer)

Address

Total SF

Hudson Pacific

1111 Bayhill Dr, San Bruno

515,000

Hudson Pacific

2988 Campus Dr, San Mateo

492,000

Hudson Pacific

950 Tower Ln, Foster City

400,000

Source: CBRE Research, Q2 2015.

Q2 2015 CBRE Research

6% 3%
18%

73%

Technology

Biotechnology

Legal

Financial

Source: CBRE Research, Q2 2015.

© 2015 CBRE, Inc.  

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

LEASE RATES

Asking rates continued their upward trend
reaching a market-wide average of $5.07 during
the second quarter, representing a 2.0% increase
from last quarter. This marks the first time in 15
years that asking rents have crossed the $5.00
mark. Investment sales – another contributing
factor to increasing rental rates – continue to post
record prices per sq. ft. and further extend this
trend.
N E T A B S O RP TI ON

The SF Peninsula office market established
significant occupancy gains in Q2 2015, posting
401,623 sq. ft. of positive net absorption. Central
County submarkets continue to attract leasing
demand, in an attempt to escape the supply
constrained southern submarkets, as five leases
between San Mateo and Redwood City contributed
to over 48.7% of Peninsula occupancy gains in Q2
2015.

Figure 5: Lease Rates

Asking Rate
($/SF)
6.00

$5.63

Class A
Class B

$5.01

5.00

4.00

3.00
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

Source: CBRE Research, Q2 2015.
Figure 6: Net Absorption
Sq. Ft.
(000’s)
500
400
300
200
100
0
(100)
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

Source: CBRE Research, Q2 2015.

V A C A NC Y & A V A I L A B I L I TY

Figure 7: Vacancy & Availability

Vacancy in the Peninsula office market dropped by
150 basis points quarter-over-quarter, settling at
8.0% market-wide. Lease renewals and expansions
continue to drive market activity. As very little
vacant space in the southern and central
submarkets is expected to come to market in the
coming months, demand is expected to shift north
and the outlook for the region remains strong for
2015.

%
16.0

C O N S TRU C TI ON C O M PL E TI ONS

Figure 8: Construction Completions

There is currently 1.8 million sq. ft. of
development under construction in the Peninsula.
New development continued to break ground in
San Mateo as Hines’ project at 400-450 Concar is
now underway for redevelopment. The outlook for
Central and North County continues to gain
momentum as new developments break ground
and pre-lease as well.

14.0

11.0

12.0
10.0

Total Availability Rate
Total Vacancy Rate

8.0

8.0

6.0
Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015

Source: CBRE Research, Q2 2015.

Sq. Ft.
(000’s)
250
200
150
100
50
0
2009

2010

2011

2012

2013

2014

2015

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

© 2015 CBRE, Inc.  

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

S U B M A RK E T M A P

CONTACT

Scott London
Researcher
Two Palo Alto Square, Suite 100
Palo Alto, CA 94306
650 494 5161
scott.london@cbre.com
Geoff Esmail
Researcher
950 Tower Lane, Suite 870
Foster City, CA 94404
650 577 2911
geoff.esmail@cbre.com

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

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.

SURVEY CRITERIA

CBRE’s market report analyzes existing single- and multi-tenant office buildings that
total 10,000+ sq. ft. in the San Francisco Peninsula, 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.