By Blanca Torres – Reporter, San Francisco Business Times, Dec 3, 2019
The Bay Area’s core office market retained its spot as the nation’s strongest office market with the lowest vacancy and highest rents. A third quarter report from Colliers International comparing 10 office markets around the country found that the Bay Area’s vacancy rate of 5.4% and average asking rent of $86.22 put it ahead of its closest rivals: Manhattan at 5.5% vacancy and $80.27 per square foot average asking rent and Seattle at 6.3% and $42.87. The Bay Area has had the lowest vacancy on Colliers’ list for more than three years now.
“There’s a very tight availability of sites to build new construction” in the Bay Area along with policies such as Prop. M in San Francisco that purposely limit new office construction, said Stephen Newbold, national director of office research for Colliers.
Regions on the other end of the spectrum include Houston with 20.8% vacancy and $36.05 per square foot average asking rents, Washington, D.C., with 14.9% vacancy and $49.95 per square foot average asking rents, and Los Angeles at 14% vacancy and $48.74 per square foot average rents.
The report compares what Colliers has deemed the top submarkets within each metro area. For the Bay Area, those include both the Financial District and SoMa in San Francisco along with Palo Alto, Mountain View and Sunnyvale, which contain an aggregate of 101.5 million square feet of office space.
“The real big driver is the strong demand from tech firms,” Newbold said.
Tech companies in the Bay Area such as Google, Facebook, Apple and Salesforce are continually expanding their footprints. That means that much of the leasing in the Bay Area represents new growth whereas in other regions, tenants often leave vacant buildings behind when they sign a new lease.
Even though many companies are leaving the Bay Area because of the high cost of doing business and high cost of living for employees, that trend doesn’t seem to be putting a dent in the Bay Area’s office market yet, Newbold said.
The scarcity of supply coupled with demand from tenants that want to maintain some presence here also helps, he said. Many tech companies are expanding elsewhere in places like Austin, where office rents and housing are much cheaper than the Bay Area. Meanwhile, Dallas has lured several Bay Area headquarters, the most recent being Charles Schwab. Office rents there are less than half of what they are in the Bay Area at $32.90 per square foot with vacancy at 16.1%.
Texas cities in particular, Newbold said, have high vacancy rates because they are still recovering from the energy sector crash that happened more than a decade ago. Also, the markets are filled with less desirable office space that sits vacant for long periods of time. That happens less in a land-constrained market like the Bay Area.
“As in San Francisco, confidence in Silicon Valley’s office market remains sound,” the report states. “Expansion by mature technology companies and the sustained inflow of venture capital funding continue to underpin demand.”
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