September and October are traditionally some of the strongest office leasing months of the year because that is when businesses make the decision to move or not by year’s end. The overall success of this year’s office market could be determined by activity during these critical months.
San Francisco continues to enjoy a solid economy. Startups combined with positive employee gains have helped tighten the office market. But San Francisco is a mature market that typically does not attract large new employee-based companies. In recent years, the city has lost the interest of Fortune 500—let alone Fortune 1000—firms that want to call the city their corporate home.
Yet, nearing the end of the third quarter, San Francisco has seen a net absorption of 466,000 square feet. Last year at the same time the net absorption was 1,600,000 square feet. (What is telling about this year is that during the first quarter we saw a negative absorption of 125,000 square feet.) With the exception of the dot-com period and 2005, San Francisco has seen positive absorption of 600,000–800,000 square feet. The current year promises to be an average year for San Francisco commercial real estate.
However, landlords may see something different in these numbers. Rents have increased an average of 15% this year; many landlords are holding off leasing in anticipation of an even tighter vacancy market. Landlords are closely watching September and October figures for signs of increased rental activity and therefore a lower vacancy rate.
Tenants face an uncertain market and also need to closely watch September and October figures if they are considering a move or have a lease coming up within the next 18 months. They might consider subleasing existing space and moving into a new space to lock in today’s rates and take advantage of a hot real estate market. But if the market looks likes it is softening, tenants would be better off waiting to see what happens in the next six months. |
Peter
Rosenthal and Steven Newhauser are agents 
