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Market Research - San Francisco
USA

United States: San Francisco office market - 2020 overview

Sales volume bounced back in the final quarter of what was an uncertain year in the San Francisco office market. Nearly $5.5 billion of transactions took place in 2020, of which the closing of the Transamerica Pyramid complex in the last quarter is the most notable.

Negative absorption continues to increase

During the fourth quarter of 2020, San Francisco recorded approximately 1.9 million SF of negative net absorption bringing the total for the year to negative 6.4 million SF. 
As of late, sublease space has been a key performance indicator for the San Francisco CBD. However, the rate of sublease space decreased during the latter part of 2020, with the fourth quarter seeing an increase of just under 700,000 SF. It is important to note that the spike in negative net absorption can be tied to the vacated space being marketed for sublet as tenants aim to mitigate their financial obligations during the downturn.
Expect companies to potentially take their sublease space off the market in the future as they come to realize how much space they will actually need themselves.
 

 

 Class A rents continue their descent

Rents declined throughout 2020, and are almost at rates of 2018. Rents are nearly 6% below the end of 2019 rental rates. Class A product is averaging $86.88 PSF while Class-B product is averaging $82.13 PSF.
Quarter over quarter, Class A rates dropped 0.9% while Class B product decreased 1.4% quarter to quarter.
Mission Bay continues to rank as the most expensive submarket with only 1.8% vacancy averaging $101.50 PSF. Just after Mission Bay, the North Waterfront is averaging $86.55 PSF across both Class A and Class B product.
 

 

Transamerica Pyramid complex sells for $650 million

Sales volume bounced back in the final quarter of what was an uncertain year in the San Francisco office market. Nearly $5.5 billion of transactions took place in 2020, of which the closing of the Transamerica Pyramid complex in the last quarter is the most notable.
Sales volume in 2020 was still higher than both 2017 ($5.3B) and 2018 ($4.6B), proving that San Francisco remains a desirable market for investors. Another notable transaction in the period, Ascendas Real Estate Investment Trust completed a $560 million purchase of a two-building portfolio for a reported cap rate of 4.9%.
Volume in 2021 depends on several factors, including geopolitical and the ongoing pandemic, but expect continued interest from investors in the San Francisco office market moving forward.
 

  

AAG San Francisco office market 2020 overview
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