Source: CoStar www.costar.com
The San Francisco Industrial market ended the second quarter 2014 with a vacancy rate of 4.3%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 977,686 square feet in the second quarter. Vacant sublease space increased in the quarter, ending the quarter at 332,887 square feet. Rental rates ended the second quarter at $14.97, an increase over the previous quarter. There were no properties under construction at the end of the quarter.
Absorption
Net absorption for the overall San Francisco Industrial market was positive 977,686 square feet in the second quarter 2014. That compares to positive 69,743 square feet in the first quarter 2014, positive 505,972 square feet in the fourth quarter 2013, and positive 185,186 square feet in the third quarter 2013.
Vacancy
The Industrial vacancy rate in the San Francisco market area decreased to 4.3% at the end of the second quarter 2014. The vacancy rate was 5.8% at the end of the first quarter 2014, 6.0% at the end of the fourth quarter 2013, and 6.5% at the end of the third quarter 2013.
Flex projects reported a vacancy rate of 5.8% at the end of the second quarter 2014, 9.1% at the end of the first quarter 2014, 8.9% at the end of the fourth quarter 2013, and 9.2% at the end of the third quarter 2013.
Warehouse projects reported a vacancy rate of 3.7% at the end of the second quarter 2014, 4.7% at the end of first quarter 2014, 4.9% at the end of the fourth quarter 2013, and 5.6% at the end of the third quarter 2013.
Sublease Vacancy
The amount of vacant sublease space in the San Francisco market increased to 332,887 square feet by the end of the second quarter 2014, from 240,425 square feet at the end of the first quarter 2014. There was 147,837 square feet vacant at the end of the fourth quarter 2013 and 222,073 square feet at the end of the third quarter 2013.
San Francisco’s Flex projects reported vacant sublease space of 147,882 square feet at the end of second quarter 2014, up from the 135,533 square feet reported at the end of the first quarter 2014. There were 129,587 square feet of sub- lease space vacant at the end of the fourth quarter 2013, and 136,326 square feet at the end of the third quarter 2013.
Warehouse projects reported increased vacant sublease space from the first quarter 2014 to the second quarter 2014. Sublease vacancy went from 104,892 square feet to 185,005 square feet during that time. There was 18,250 square feet at the end of the fourth quarter 2013, and 85,747 square feet at the end of the third quarter 2013.
Rental Rates
The average quoted asking rental rate for available Industrial space was $14.97 per square foot per year at the end of the second quarter 2014 in the San Francisco market area. This represented a 3.6% increase in quoted rental rates from the end of the first quarter 2014, when rents were reported at $14.45 per square foot.
The average quoted rate within the Flex sector was $23.85 per square foot at the end of the second quarter 2014, while Warehouse rates stood at $11.26. At the end of the first quarter 2014, Flex rates were $23.01 per square foot, and Warehouse rates were $10.85.
Deliveries and Construction
During the second quarter 2014, no new space was completed in the San Francisco market area. This compares to 0 buildings completed in the first quarter 2014, one building totaling 36,000 square feet completed in the fourth quarter 2013, and nothing completed in the third quarter 2013. There was no Industrial space under construction at the end of the second quarter 2014.
Inventory
Total Industrial inventory in the San Francisco market area amounted to 95,310,805 square feet in 4,853 buildings as of the end of the second quarter 2014. The Flex sector consisted of 23,910,714 square feet in 789 projects. The Warehouse sector consisted of 71,400,091 square feet in 4,064 buildings. Within the Industrial market there were 505 owner-occupied buildings accounting for 12,486,342 square feet of Industrial space.
Sales Activity
Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures rose during the first quarter 2014 in terms of dollar volume compared to the fourth quarter of 2013.
In the first quarter, seven industrial transactions closed with a total volume of $153,598,100. The seven buildings totaled 667,191 square feet and the average price per square foot equated to $230.22 per square foot. That compares to 12 transactions totaling $84,675,000 in the fourth quarter. The total square footage was 480,193 for an average price per square foot of $176.34.
Total year-to-date industrial building sales activity in 2014 is up compared to the previous year. In the first three months of 2014, the market saw seven industrial sales transactions with a total volume of $153,598,100. The price per square foot has averaged $230.22 this year. In the first three months of 2013, the market posted two transactions with a total volume of $5,764,000. The price per square foot averaged $163.24.
Cap rates have been higher in 2014, averaging 6.70%, compared to the first three months of last year when they averaged 6.11%.