The San Francisco Industrial market ended the fourth quarter 2014 with a vacancy rate of 3.9%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 278,485 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, end- ing the quarter at 285,144 square feet. Rental rates ended the fourth quarter at $15.94, an increase over the previous quarter. There was 108,080 square feet still under construction at the end of the quarter.
ABSORPTION
Net absorption for the overall San Francisco Industrial market was positive 278,485 square feet in the fourth quarter2014. That compares to negative (98,393) square feet in the third quarter 2014, positive 979,226 square feet in the second quarter 2014, and positive 106,799 square feet in the first quarter 2014.
Tenants moving out of large blocks of space in 2014 include: FedEx moving out of (60,100) square feet at 200 Littlefield Ave, Vitasoy moving out of (52,500) square feet at 584 Eccles Ave, and KaloBios Pharmaceuticals moving out of(49,351) square feet at 260 E Grand Ave.
The Flex building market recorded net absorption of positive 131,243 square feet in the fourth quarter 2014, compared to positive 38,309 square feet in the third quarter 2014, positive 299,408 in the second quarter 2014, and negative (33,399) in the first quarter 2014.
The Warehouse building market recorded net absorption of positive 147,242 square feet in the fourth quarter 2014 com- pared to negative (136,702) square feet in the third quarter 2014, positive 679,818 in the second quarter 2014, and positive 140,198 in the first quarter 2014.
VACANCY
The Industrial vacancy rate in the San Francisco market area decreased to 3.9% at the end of the fourth quarter 2014. The vacancy rate was 4.2% at the end of the third quarter 2014, 4.1% at the end of the second quarter 2014, and 5.7% at the end of the first quarter 2014.
Flex projects reported a vacancy rate of 5.3% at the end of the fourth quarter 2014, 5.8% at the end of the third quarter 2014, 6.0% at the end of the second quarter 2014, and 9.3% at the end of the first quarter 2014.
Warehouse projects reported a vacancy rate of 3.4% at the end of the fourth quarter 2014, 3.7% at the end of third quarter 2014, 3.5% at the end of the second quarter 2014, and 4.5% at the end of the first quarter 2014.
RENTAL RATES
The average quoted asking rental rate for available Industrial space was $15.94 per square foot per year at the end of the fourth quarter 2014 in the San Francisco market area. This represented a 4.4% increase in quoted rental rates from the end of the third quarter 2014, when rents were reported at $15.27 per square foot.
The average quoted rate within the Flex sector was $25.58 per square foot at the end of the fourth quarter 2014, while Warehouse rates stood at $12.05. At the end of the third quarter 2014, Flex rates were $24.68 per square foot, and Warehouse rates were $11.65.
DELIVERIES AND CONSTRUCTION
During the fourth quarter 2014, no new space was completed in the San Francisco market area. This compares to 0 buildings completed in the previous three quarters. There were 108,080 square feet of Industrial space under construction at the end of the fourth quarter 2014. The largest projects underway at the end of fourth quarter 2014 were 901 Rankin St, an 82,480-square-foot building with 100% of its space pre-leased by Goodeggs and Mollie Stone’s Markets, and 1 Kelly Ct, a 25,600-square-foot facility that CS Bio Company, Inc. expanded.
INVENTORY
Total Industrial inventory in the San Francisco market area amounted to 94,659,417 square feet in 4,843 buildings as of the end of the fourth quarter 2014. The Flex sector consisted of 23,849,302 square feet in 789 projects. The Warehouse sector consisted of 70,810,115 square feet in 4,054 buildings. Within the Industrial market there were 511 owner-occupied buildings accounting for 12,380,944 square feet of Industrial space.
SALES ACTIVITY
Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures fell during the third quarter 2014 in terms of dollar volume compared to the second quarter of 2014. In the third quarter, nine industrial transactions closed with a total volume of $83,684,000. The nine buildings totaled 377,408 square feet and the average price per square foot equated to $221.73 per square foot. That compares to 20 trans- actions totaling $109,016,000 in the second quarter. The total square footage was 558,793 for an average price per square foot of $195.09.
Total year-to-date industrial building sales activity in 2014 is up compared to the previous year. In the first nine months of 2014, the market saw 36 industrial sales transactions with a total volume of $346,298,100. The price per square foot has averaged $215.98 this year. In the first nine months of 2013, the market posted 19 transactions with a total volume of $107,082,100. The price per square foot averaged $166.89.
Cap rates have been higher in 2014, averaging 6.70%, compared to the first nine months of last year when they averaged 6.10%.
Source: CoStar Year End 2014 Industrial Report