San Francisco set to grow in 2013
San Francisco real estate has made headlines for several years, but now there’s an even brighter light shining on the city with professional baseball’s San Francisco Giants becoming the World Series Champion and next year’s hosting of the America’s Cup sailing trophy.
Sports often provide enthusiasm for cities around the world, especially during these tough economic times. Yet we must take a look at the fundamentals beyond the hype, to give investors and occupiers a clear view of what’s driving the local economy and commercial real estate.
Technology industry growth over the past three years has produced two-thirds of all the jobs created in the City of San Francisco between mid-2009 and mid-2012.
In total, 14,000 new technology industry jobs needing office space were created, representing a 62 per cent growth rate, according to State of California employment statistics.
The direct correlation to office space demand is clear with 3.5 million square feet of net absorption or take-up, vacancies declining by six percentage points to 9.8 per cent, and rents surging by 50 per cent, all having occurred between the start of 2010 and the third quarter of 2012.
Demand has outpaced supply and that condition will not change until new building space comes on-line in late 2013.
San Francisco is the strongest rent and property income growth market by far in the US.
What started in ‘cool’ submarkets South of Market Street, where creative brick and timber buildings fostered and defined this social media, mobile, search, cloud computing technology boom, has grown out into the central business district and boosted commercial real estate values citywide.
Apartment rents have jumped 40 per cent for many of the same reasons cited for office space. Technology workers throughout the Bay Area are drawn to the youthful and vibrant lifestyle San Francisco offers.
Investors have descended to take advantage of opportunities and upside potential.
Office property sales volume is poised to exceed US$5.0 billion (HK$ 38.75 billion) in 2012, the second highest total on record behind 2007’s US$9.0 billion.
Closed Class A property sales have averaged US$620 per square foot in 2012, a 25 per cent increase over last year.
Our outlook suggests further growth in 2013, powered by the technology industry once again.
We do expect change in the pace of growth and better alignment of supply and demand by year-end. Still, slower growth, even at half the rate of 2012, will be the envy of most markets in the US.