The Sizzling San Francisco Market

San Francisco is one of the strongest markets in the nation, says Stephen Van Dusen, managing director with Eastdil Secured, in a presentation to the NAIOP Board of Directors at the National Forums Symposium today in San Francisco.

What’s driving demand? The tech sector, says Van Dusen, but ancillary businesses are benefiting, too. Tech companies attract legal and financial services, and greater growth across the board equals residential demand and retail expansion.

Of the fourteen largest tech companies in San Francisco, only one was here in 2001: eBay. Today, Google, Salesforce, Twitter, Adobe, Dolby, Square, Microsoft, Yelp, Uber, Macy’s, eBay, Amazon, LinkedIn and Dropbox have enjoyed a cumulative 100,000+ square feet of net growth since the last cycle – with demand to expand.

San Francisco’s tight vacancy rate is creating a compelling story for strategic developers who want to time the market cycle. Rents are still shy of 2000 rates of $81.50, but are starkly higher than the $50.66 rents of 2007. Today, Q1 2015 rates are $67.

Also heard at the National Forums Symposium:

  • Proposition M limits development to 875,000 square feet of office each year, with a carry-forward provision. From 2002-2012, only two buildings were built, so the carry-over is enormous.
  • For every five deals done in the market, three are in cash.
  • Creative space? Locals call it “trophy tech” to appeal to the up-and-coming tech companies seeking space in San Francisco. With great locations for public transportation, tech companies are attracted to collaborative workspaces.
  • Replacement costs in San Francisco are $900-1,000 per square foot – and growing. The only higher costs are in NYC.
  • The current cycle demand is location and floor plate — much different than the last cycle’s demand for views.

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