{"id":1004634653,"date":"2023-05-19T04:55:09","date_gmt":"2023-05-19T12:55:09","guid":{"rendered":"https:\/\/www.commercialsearch.com\/news\/?p=1004634653"},"modified":"2023-05-24T01:23:03","modified_gmt":"2023-05-24T09:23:03","slug":"san-franciscos-office-market-favored-life-sciences-in-q1","status":"publish","type":"post","link":"https:\/\/www.commercialsearch.com\/news\/san-franciscos-office-market-favored-life-sciences-in-q1\/","title":{"rendered":"San Francisco’s Office Market Favored Life Science in Q1"},"content":{"rendered":"
\"\"<\/a>

Image by georgeclerk\/iStockphoto.com<\/p><\/div>\n

San Francisco\u2019s office market continued at a sluggish pace through the first quarter. Vacancy failed to improve, with most large deals being subleases. Most development activity is concentrated in the southern portion of the metro, especially in South San Francisco, as traditional office users have put expansion plans on hold. Meanwhile, the continued growth of life sciences<\/a> has led to a race by developers to capitalize on this need.<\/p>\n

Life sciences dominate development<\/h2>\n

As of March, San Francisco had 7.8 million square feet of office space under construction across 39 properties, representing 5.1 percent of existing stock\u2014almost triple the national average of 1.8 percent. The metro\u2019s pipeline as a percentage of existing stock grew by 150 basis points year-over-year.<\/p>\n

The impact of the life sciences industry on the office market brought San Francisco in line with other metros where this sector is thriving, such as Boston (5.5 percent of stock underway) or San Diego (5.3 percent). Compared to other gateway markets, San Francisco\u2019s office construction pipeline stood at the top. It was followed by Miami (3.3 percent), Manhattan (2.0 percent), Chicago (1.2 percent) and Los Angeles (0.9 percent).<\/p>\n

The largest development underway was Kilroy Oyster Point<\/a>\u2019s three-building second phase, dubbed Gravitate, which broke ground last year. The $940 million project, developed by Kilroy Realty Corp.<\/strong>, will offer 750,000 square feet of office space in South San Francisco and is expected to come online in 2024.<\/p>\n

Construction starts during the first quarter amounted to 1 million square feet of rentable office space across three properties\u2014all of them are marketed as offices for the life science sector. These three projects were also among the top five largest developments underway in the market.<\/p>\n

\"\"<\/a>

Rendering of Southline. Image courtesy of Square Mile Capital Management<\/p><\/div>\n

The largest of these was Lane Partners\u2019<\/strong> first phase of Southline, comprising 715,000 square feet of office space across two buildings, in South San Francisco. In January, the developer received a $373 million financing package<\/a> for the project, which is estimated to have a total cost of $1 billion and comprise approximately 3 million square feet of office space once fully completed.<\/p>\n

The third property that broke ground during the first quarter was Longfellow Real Estate Partners\u2019<\/strong> Avia Labs at Millbrae Station, a 315,000-square-foot property set to comprise lab and office space and to achieve LEED Gold and Fitwel certifications. In March, the developer received a $310 million construction loan for Avia Labs<\/a>, from Otera Capital<\/strong>.<\/p>\n

The South San Francisco submarket had by far the largest share of the construction pipeline, with 3.7 million square feet underway as of March. It was followed by Redwood City (1 million square feet), San Francisco-SOMA (840,000 square feet) and Burlingame (700,000 square feet).<\/p>\n

Office vacancy still struggled<\/h2>\n

San Francisco\u2019s office vacancy stood at 19.1 percent as of March, down only 10 basis points month-over-month. The market\u2019s rate was 240 basis points higher than the national average. With return-to-office sentiment still wavering, along with companies downsizing or pausing expansion plans, the metro\u2019s vacancy remains the highest among gateway markets, except Chicago, which was on equal footing (19.1 percent). It was followed by Phoenix (18.2 percent), Manhattan (16.5 percent), Los Angeles (14.7 percent) and Miami (11.9 percent).<\/p>\n

Despite sluggish leasing activity, with most large deals being subleases, the average listing rate of stabilized assets stood at $66.1 as of March, up 4.9 percent year-over-year and among the most expensive in the U.S. The national rate was $38.2, and only Manhattan recorded a higher rate, at $74.2.<\/p>\n

Both sales volume and average prices dropped<\/h2>\n

Eight properties changed hands during the first quarter in San Francisco, generating $316.4 million in sales. Sales volume dropped by 38.6 percent from 2022\u2019s first quarter. The average price per square foot of stood at $520 in March, significantly above the national average of $195, but down 33 percent year-over-year.<\/p>\n

Despite a decline in prices, San Francisco remained among the most expensive metros in the U.S., exceeded only by Manhattan ($1,002 per square foot on average), The Bay Area\u2014comprising the East and South Bay ($604) and Boston ($555).<\/p>\n

The largest sale of the first quarter occurred in the South Financial District submarket\u2014The Sobrato Organization <\/strong>purchased the 156,512-square-foot One Harrison from Gap<\/strong>, for $80 million, or $511 per square foot.<\/p>\n

\"\"<\/a>

Southbridge Plaza. Photo courtesy of CommercialEdge<\/p><\/div>\n

Another notable sale was of the newly constructed, 56,000-square-foot Southbridge Plaza, at 345 Fourth St. in the SOMA submarket. Taipei Economic and Cultural Office <\/a><\/strong>acquired the property<\/a> for $52.8 million, or $880 per square foot, from Tarsadia Investments<\/strong>. The new owner will occupy the entirety of the office space.<\/p>\n

Morgan Stanley <\/strong>closed on the most expensive transaction on a per-square-foot basis. The company acquired a medical office building at 321 Middlefield Road<\/a> in Menlo Park, for $68 million, or $1,404 per square foot. The seller was Pollock Financial Group<\/strong>.<\/p>\n

More coworking providers appear<\/b><\/h2>\n

San Francisco had flexibile office space accounting for 1.8 percent of its entire office inventory, standing slightly above the 1.7 percent national value. The largest flexible office markets, represented as a share of total office space, were Brooklyn (5.2 percent), Miami (3.3 percent) and Manhattan (2.8 percent).<\/p>\n

\"\"<\/a>

San Francisco Pacific Heights. Image courtesy of Pacific Workplaces<\/p><\/div>\n

The growing demand for more flexible space<\/a> in the market continues to attract more providers, as well as prompt existing ones to expand their portfolio. In January, Pacific Workplaces opened its second location<\/a><\/strong> in San Francisco\u2014the new location measures 10,798 square feet at 2001 Van Ness Ave., in Pacific Heights.<\/p>\n

Last month, AvantSpace <\/strong>announced plans to open a 10,000-square-foot coworking space in San Rafael<\/a>, at 835 5th Ave., within a 12,976-square-foot historic building.<\/p>\n

Convene<\/strong> announced it will open its first location<\/a> in the market at 100 Stockton St., in the Union Square neighborhood. The 65,000-square-foot space will serve as a Meetings and Events venue, and sits within a 265,000-square-foot building that is currently undergoing a mixed-use renovation. Convene plans to bring it online in October this year.<\/p>\n

CommercialEdge covers 8M+ property records in the United States. View the latest CommercialEdge national monthly office report here<\/a>. We included properties of 25,000+ square feet in our research.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

As of March, the city had 7.8 million square feet of office space under construction.<\/p>\n","protected":false},"author":1284,"featured_media":1004635045,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[22251,21742,21747,1609,15],"tags":[51047,50674],"class_list":["post-1004634653","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-in-focus","category-latest","category-office","category-san-francisco","category-west","tag-marketupdate","tag-commercialedge"],"acf":[],"yoast_head":"\nSan Francisco's Office Market Favored Life Science in Q1 - Commercial Property Executive<\/title>\n<meta name=\"description\" content=\"San Francisco's office market was emboldened by the strong growth of life sciences and tech, while traditional office spaces did not recover.\" \/>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.commercialsearch.com\/news\/san-franciscos-office-market-favored-life-sciences-in-q1\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"San Francisco's Office Market Favored Life Science in Q1\" \/>\n<meta property=\"og:description\" content=\"San Francisco's office market was emboldened by the strong growth of life sciences and tech, while traditional office spaces did not recover.\" \/>\n<meta property=\"og:url\" content=\"https:\/\/www.commercialsearch.com\/news\/san-franciscos-office-market-favored-life-sciences-in-q1\/\" \/>\n<meta property=\"og:site_name\" content=\"Commercial Property Executive\" \/>\n<meta property=\"article:publisher\" content=\"https:\/\/www.facebook.com\/CPExecutive\" \/>\n<meta property=\"article:published_time\" content=\"2023-05-19T12:55:09+00:00\" \/>\n<meta property=\"article:modified_time\" content=\"2023-05-24T09:23:03+00:00\" \/>\n<meta property=\"og:image\" content=\"https:\/\/www.commercialsearch.com\/news\/wp-content\/uploads\/sites\/46\/2022\/12\/Market-Update-San-Francisco-featured.jpg\" \/>\n\t<meta property=\"og:image:width\" content=\"1200\" \/>\n\t<meta property=\"og:image:height\" content=\"900\" \/>\n\t<meta property=\"og:image:type\" content=\"image\/jpeg\" \/>\n<meta name=\"author\" content=\"Tudor Scolca\" \/>\n<meta name=\"twitter:card\" content=\"summary_large_image\" \/>\n<meta name=\"twitter:creator\" content=\"@cpexecutive\" \/>\n<meta name=\"twitter:site\" content=\"@cpexecutive\" \/>\n<script type=\"application\/ld+json\" class=\"yoast-schema-graph\">{\"@context\":\"https:\/\/schema.org\",\"@graph\":[{\"@type\":\"WebPage\",\"@id\":\"https:\/\/www.commercialsearch.com\/news\/san-franciscos-office-market-favored-life-sciences-in-q1\/\",\"url\":\"https:\/\/www.commercialsearch.com\/news\/san-franciscos-office-market-favored-life-sciences-in-q1\/\",\"name\":\"San Francisco's Office Market Favored Life Science in Q1 - 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