May Office Leasing Activity Soft

After a strong first quarter of commercial leasing and sales activity, Starboard TCN Worldwide reported a slowdown in deal closing numbers for May. Seasonally, May has historically been a slow month in office leasing activity. Most tenants that started to look at the beginning of the New Year closed their deals in April. April also being a major “tax” month also deters potential tenant’s attention away from looking for office space. Office Leasing Watchers are now waiting to see if June rebounds before the traditionally slow summer month activity begins.

The overall vacancy numbers for San Francisco remained at 18.5% for direct space available and 24.5% with sublease space. These figures have not changed since February 2002 when vacancy numbers hit these numbers for the first time.

The vacancy numbers for spaces under 5,000 square feet remained at 6.5%. Demand continues to be strong in this size area. What has changed is that tenants are seeking longer than five-year terms. With rental rates the lowest since 1991, tenants are seeking to lock in today’s rental rates for as long as possible and Landlords are willing to do so to help amortize upfront costs of tenant improvements and other related costs to secure a tenant over a longer period. Since San Francisco is still experiencing no “net absorption” of it’s current office vacancy, landlords are preparing for no significant rental rates any time soon.