AgdaPkt 2005-10-24 - Laserfiche WebLink

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#{. 46 CB RICHARD ELLIS CONSULTING Sedway Group CBRE CB RICHARD ELLIS RECENT OFFICE MARKET TRENDS San Francisco Peninsula The SFP office market realized nearly seven million square feet of net absorption from 1997 to 2000. However, this tech-concentrated, volatile market turned dramatically in 2001 with the implosion of technology sector demand. From 2001 to 2003, occupied space contracted by nearly three million square feet while, at the same time, 7.4 million square feet of new supply was added to the market. As a result, the vacancy rate jumped to a high of 23.2 percent at year-end 2003, from a record low of 0.3 percent in the first quarter of 2000. More recently, the SFP office market has shown signs of stabilizing, recording positive, albeit modest, net absorption for the past six consecutive quarters. As of third quarter 2004, the total vacancy rate had decreased to 20.1 percent and year-to-date net absorption for the SFP totaled a respectable 1.5 million square feet. SFP Class A space has historically posted slightly higher vacancy rates than has the overall office market, averaging 12.1 percent since 1996. As of third quarter 2004,22.2 percent of the SFP's 19.5 million square feet of Class A space was vacant, despite evidence of a "flight to quality" trend that has seen tenants "move up" into what has become much more affordable Class A space. No new supply has come on line this year and, with the exception of one Class A facility for Genentech in South San Francisco, no office space is currently under construction. Average asking lease rates (full service) softened by a slight -2.3 percent during the first three quarters of the year to $2.16 per square foot per month as of September 2004. SFP rents have ceased the free fall that followed their peak of nearly $5.60 per square foot per month at year-end 2000. Taking tenant improvements and other concessions into account, effective rents are 10 percent to 20 percent lower than asking lease rates. Geographically, the highest office rents are found in the South County (Palo Alto and Menlo Park). The North County offers some of the lowest lease rates in the SFP market. According to local broker sources, as of October 2004, numerous tenants were seeking a total of approximately 700,000 square feet of office space in the SFP. These requirements translate into net demand for nearly 380,000 square feet, with the difference being leave-behind space. Biotech, software, and other technology tenants dominate the list of companies currently searching for space. In terms of location, more than 50 percent of tenant requirements are for space in the Central County, which includes the Redwood City submarket. Redwood City Similar to its SFP and Silicon Valley neighbors, the Redwood City office market has suffered from weak demand and oversupply since 2001. Following positive net absorption of 2.7 million square feet from 1997 to 1999, the tech-driven downturn slowed demand in late 2000 and 2001. This lack of demand, combined with the addition of 2.6 million square feet of new space in 2001 and 2002, caused vacancy to spike from a low of 0.8 percent in 1999 to 33.3 percent in 2003. Demand. Unlike much of the rest of the SFP, Redwood City's office market further softened, rather than stabilized, during 2003. Although 2004 has shown signs of improvement, including 470,000 square feet of positive net absorption, the submarket's vacancy rate remains one of the highest in the SFP, registering 28.9 percent as of September 2004. There are several reasons behind Redwood City's poor performance. The office-using sectors that are driving demand in the North County (biotechnology, most notably Genentech's appetite for