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Market Research - San Francisco

United States: San Francisco office market - Q4 2019

2019 reached the highest investment sales volume for the decade this year, with more than $9.0 billion worth of office sales transactions.

San Francisco records 10 straight quarters of positive absorption

Demand in the downtown San Francisco office market recorded 619,000 SF of positive net absorption during the fourth quarter of 2019, marking the 10th consecutive quarter with positive absorption. This brings the total for the year to 1.9 million SF of absorption. The most notable lease transaction for the quarter was Visa signing a new lease for 300,000 SF at the yet-to-be delivered Mission Rock project in Building G in the Mission Bay submarket. Job growth in San Francisco continued in 2019, increasing 3.4%, above 3.0% registered in 2018. Unemployment hit 2.0%, marking a fourth quarter record low in the last 20 years, a 10 basis point drop year-over-year.


Large blocks driving upwards pressure on asking rents

Total office vacancy for all classes of office space decreased to 4.1%. In 2018, the average vacancy was 4.7% further proving an increasingly tight market in San Francisco. Outside of Visa, the market saw two large transactions in the SOMA/Rincon/ Showplace Square submarket, with Sony signing a new lease for 130,000 SF at 303 2nd Street and AirBnB taking over Pinterest’s old 60,860 SF space at 808 Brannan Street. Fourth quarter average asking rates jumped to $85.41 PSF, an 8.7% increase year-over-year. For Class-A office space, Yerba Buena took over as the highest average asking submarket, largely due to the 110,000 SF availability at 835 Market Street that came online in the quarter. 


2019 office transactions more than doubles 2018 volume 

2019 reached the highest investment sales volume for the decade this year, with more than $9.0 billion worth of office sales transactions. For comparison, 2018 recorded just under $4.5 billion in transaction volume. Total sales volume for the quarter recorded $1.8 billion in transactions. Most notable transactions for the quarter included the sale of the Market Center to the Paramount Group, totaling $722.0 million. Other notable sales included 1155 Battery Street for $826.0 million to Jamestown LP, 650 Townsend Street for $602.7 million to Beacon Capital Partners, and 123 Mission Street for $397.0 million to Juul - which is expected to hit the market again in early 2020. Cap rates continued to drop, averaging 5.1% at year-end 2019.


AAG San Francisco office market Q4 2019
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