Paradigm Shift
The overall vacancy rate for all tracked property types remained stable across the San Francisco Peninsula markets. At the end of the quarter, overall vacancy stood at 5.3 percent, 10 basis points below last quarter. Sublease vacancy rate remained unchanged ending the quarter at 1.5 percent. Overall vacancy was buoyed by a resilient office sector, which experienced a contraction in vacant space from 7.3 percent to 6.5 percent quarter-over-quarter. The San Mateo County office market remained competitive and once again office average asking rate rose to new heights at $6.00 full service, likely the peak of this incredibly prolonged cycle.
Contrary to the office market, both the R&D and industrial markets saw an increase of vacant space enter the market and a softening in asking rates. The R&D market saw an uptick in vacancy from 3.9 percent to 4.6 percent quarter-over-quarter, the highest vacancy rate since Q2 2014. Meanwhile, average asking rents descended to $4.09 NNN. San Francisco Peninsula is the epicenter of life science companies in the West, and demand from life science and biotech companies will likely hold strong as the race to develop new therapeutics and medical testing solutions intensifies to combat COVID-19. The industrial market saw vacancy increase from 3.9 to 4.4 percent quarter-over-quarter, while asking rents decreased from $1.94 NNN to $1.88 NNN over the same time period. Although net absorption was negative 245,800 square feet, the market had several significant industrial transactions.
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