Oct
29

San Francisco 3rd Quarter Industrial Market Report

San Francisco’s Vacancy Increases to 3.6%
Net Absorption Negative (517,362) SF in the Quarter

Source: CoStar

The San Francisco Industrial market ended the third quar- ter 2015 with a vacancy rate of 3.6%. The vacancy rate was up over the previous quarter, with net absorption totaling negative (517,362) square feet in the third quarter. Vacant sublease space decreased in the quarter, ending the quarter at 337,738 square feet. Rental rates ended the third quarter at $17.82, an increase over the previous quarter. There was 293,100 square feet still under construction at the end of the quarter.

ABSORPTION

Net absorption for the overall San Francisco Industrial market was negative (517,362) square feet in the third quar- ter 2015. That compares to positive 89,907 square feet in the second quarter 2015, positive 111,275 square feet in the first quarter 2015, and positive 255,214 square feet in the fourth quarter 2014.

Tenants moving out of large blocks of space in 2015 include: Nippon Express U.S.A. moving out of (188,000) square feet at 250 Utah Ave, Tyco Electronics moving out of (184,462) square feet at 300 Constitution Dr, and Hajoca Corporation moving out of (40,000) square feet at 1111 Connecticut St.

Tenants moving into large blocks of space in 2015 include: Green Leaf moving into 105,600 square feet at 455 Valley Dr, Invitae Corporation moving into 103,213 square feet at 1400 16th St, and Flying Food Group moving into 69,500 square feet at 240 Littlefield Ave.

The Flex building market recorded net absorption of posi- tive 26,642 square feet in the third quarter 2015, compared to positive 203,145 square feet in the second quarter 2015, positive 104,924 in the first quarter 2015, and positive 114,780 in the fourth quarter 2014.

The Warehouse building market recorded net absorption of negative (544,004) square feet in the third quarter 2015 compared to negative (113,238) square feet in the second quarter 2015, positive 6,351 in the first quarter 2015, and posi- tive 140,434 in the fourth quarter 2014.

VACANCY

The Industrial vacancy rate in the San Francisco market area increased to 3.6% at the end of the third quarter 2015. The vacancy rate was 3.2% at the end of the second quarter 2015, and remained at 3.7% at the end of the first quarter 2015 compared to the previous quarter.

Flex projects reported a vacancy rate of 3.9% at the end of the third quarter 2015, 4.0% at the end of the second quarter 2015, 5.0% at the end of the first quarter 2015, and 5.4% at the end of the fourth quarter 2014.

3RDqtrGRAPH

Warehouse projects reported a vacancy rate of 3.5% at the end of the third quarter 2015, 3.0% at the end of second quarter 2015, 3.3% at the end of the first quarter 2015, and 3.1% at the end of the fourth quarter 2014.

SUBLEASE VACANCY

The amount of vacant sublease space in the San Francisco market decreased to 337,738 square feet by the end of the third quarter 2015, from 339,249 square feet at the end of the second quarter 2015. There was 333,754 square feet vacant at the end of the first quarter 2015 and 285,144 square feet at the end of the fourth quarter 2014.

San Francisco’s Flex projects reported vacant sublease space of 159,239 square feet at the end of third quarter 2015, down from the 164,850 square feet reported at the end of the second quarter 2015. There were 186,108 square feet of sub- lease space vacant at the end of the first quarter 2015, and208,699 square feet at the end of the fourth quarter 2014.

Warehouse projects reported increased vacant sublease space from the second quarter 2015 to the third quarter 2015. Sublease vacancy went from 174,399 square feet to 178,499 square feet during that time. There was 147,646 square feet at the end of the first quarter 2015, and 76,445 square feet at the end of the fourth quarter 2014.

RENTAL RATES
The average quoted asking rental rate for available Industrial space was $17.82 per square foot per year at the end of the third quarter 2015 in the San Francisco market area. This represented a 1.7% increase in quoted rental rates from the end of the second quarter 2015, when rents were reported at $17.52 per square foot.

The average quoted rate within the Flex sector was $28.42 per square foot at the end of the third quarter 2015, while Warehouse rates stood at $13.76. At the end of the sec- ond quarter 2015, Flex rates were $28.53 per square foot, and Warehouse rates were $13.03.

DELIVERIES AND CONSTRUCTION

During the third quarter 2015, no new space was completed in the San Francisco market area. This compares to 0 buildings completed in the second quarter 2015, three buildings totaling 118,080 square feet completed in the first quarter 2015, and nothing completed in the fourth quarter 2014.

There were 293,100 square feet of Industrial space under construction at the end of the third quarter 2015.

Some of the notable 2015 deliveries include: 901 Rankin St, an 82,480-square-foot facility that delivered in first quarter 2015 and is now 100% occupied, and 1 Kelly Ct, a 25,600- square-foot building that delivered in first quarter 2015 and is now 100% occupied.

The largest projects underway at the end of third quarter 2015 were The Cove – Building 3, a 153,047-square-foot building with 0% of its space pre-leased, and The Cove – Building 4, a 140,053-square-foot facility that is 0% pre-leased.

INVENTORY

Total Industrial inventory in the San Francisco market area amounted to 94,065,666 square feet in 4,812 buildings as of the end of the third quarter 2015. The Flex sector consisted of 23,919,746 square feet in 791 projects. The Warehouse sector consisted of 70,145,920 square feet in 4,021 buildings. Within the Industrial market there were 520 owner-occupied buildings accounting for 12,959,398 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 sec- ond quarter 2015 in terms of dollar volume compared to the first quarter of 2015.

In the second quarter, 11 industrial transactions closed with a total volume of $88,245,000. The 11 buildings totaled 423,420 square feet and the average price per square foot equated to $208.41 per square foot. That compares to 17 transactions totaling $180,790,000 in the first quarter. The total square footage was 870,221 for an average price per square foot of $207.75.

Total year-to-date industrial building sales activity in 2015 is down compared to the previous year. In the first six months of 2015, the market saw 28 industrial sales transac- tions with a total volume of $269,035,000. The price per square foot has averaged $207.97 this year. In the first six months of 2014, the market posted 30 transactions with a total volume of $275,279,100. The price per square foot averaged $211.04.

Cap rates have been lower in 2015, averaging 4.34%, compared to the first six months of last year when they aver- aged 6.58%.

Full Report: 3rdQTR_Industrial