1. real estate

MARKETBEAT
INDUSTRIAL SNAPSHOT
SAN FRANCISCO PENINSULA, CA
Q3 2014
A Cushman & Wakefield Research Publication
OUTLOOK
According to Moody’s Analytics, the high tech employment base is
expected to expand at 2.9% and 2.6% annually during the next two
years. Exceptionally low vacancy is likely to cause further upward
pressure on asking rents, especially given the fact that the limited
amount of space under construction has been preleased. The success
of biotech companies hinges on FDA approvals and their space
requirements can quickly fluctuate as new drugs are approved or
denied. We will be watching for space to come back on the market in
South San Francisco if current occupiers are denied FDA approval.
STATS ON THE GO
SOUTH SAN FRANCISCO NEARS FULL CAPACITY
Overall Vacancy
The Peninsula industrial market continued to advance as the overall
vacancy rate inched down to the lowest level on record since the
dotcom era. The overall vacancy rate stands at 3.5%, reflecting a 20
basis point (bp) decrease from last quarter and 150 bps lower than
this time last year. In response to steady demand, landlords continued
to raise asking rents: the direct net market-wide average asking rent
increased by 39.0% from this time last year to $1.64 per square foot
per month (psf/mo). The South San Francisco market is comprised of
21.6 million square feet (msf) of industrial inventory, the Peninsula’s
largest submarket in terms of square footage, and the current vacancy
rate has fallen to 2.6%, 150 basis points less than this time last year.
This submarket benefits from having the largest concentration of bio
tech and life science occupiers. This sector continues to thrive from a
steady flow of venture capital, leading to regular expansions within
the market. Oynx Pharmaceuticals and Genentech are among the
largest occupiers in this market, with expanding footprints in recent
years. The 135,000-sf new development preleased by Onyx
Pharmaceuticals is scheduled for completion before year-end. Rinat
Neuroscience’s 10-year lease renewal at 230 East Grand, a 106,638-sf
high tech building within the epicenter of the Peninsula’s biotech
cluster, was the largest third quarter biotech deal.
Palo Alto and Menlo Park remain the desired location for more
traditional tech tenants, not disgruntled by premium asking rents.
High tech space in Palo Alto’s Stanford Research Park is $4.70 psf/mo,
161.1% higher than the $1.80 psf/mo market-wide average for high
tech space. In addition to building another campus across the street,
Facebook doubled down in Menlo Park with the purchase of the TE
Connectivity 10-building high tech campus totaling nearly one msf.
Direct Asking Rents (psf/mo)
Cushman & Wakefield of California, Inc. ― Lic #00616335
560 South Winchester Boulevard, Suite 200
San Jose, CA 95128
www.cushmanwakefield.com/knowledge
YTD Leasing Activity (sf)
Q3 2013
Q3 2014
Y-O-Y
CHANGE
5.0%
3.5%
-150 bps
$1.18
$1.64
39.0%
2,893,959
2,113,310
-27.0%
12 MONTH
FORECAST
psf/mo
DIRECT RENTAL VS. VACANCY RATES
$2.00
10.0%
$1.50
8.0%
6.0%
$1.00
4.0%
$0.50
2.0%
0.0%
$0.00
2009
2010
2011
2012
DIRECT NET RENTAL RATE
2013
Q3
2014
DIRECT VACANCY RATE
For more information, contact:
Sethena Leiker, Senior Analyst
408.572.4139
[email protected]
2010
LEASING ACTIVITY
0.4
2.1
2.0
3.9
3.1
2.4
2.8
2009
-1.0
2.2
5.0
4.0
3.0
2.0
1.0
0.0
-1.0
-2.0
-1.5
msf
LEASING ACTIVITY VS. OVERALL ABSORPTION
-0.1
San Mateo County’s market fundamentals
continued to strengthen into the second half of
the year. High tech employment gains
propelled expansion space requirements,
especially in the life science and bio tech
sectors. High tech employment grew by 4.9% during the last year,
adding a total of 3,300 jobs, according to Moody’s Analytics. This rate
of growth compares favorably with the state’s 2.8% growth and 1.9%
increase in the number of jobs added nationally. Meanwhile, the local
manufacturing sector shed jobs over the last year, recording a 1.6%
decline or 415 jobs lost. Although the manufacturing employment
base contracted, it did not result in a significant amount of space
being returned to the market.
1.4
ECONOMIC OVERVIEW
2011
2012
2013
YTD 2014
OVERALL ABSORPTION
The market terms and definitions in this report are based on NAIOP
standards. No warranty or representation, express or implied, is made to
the accuracy or completeness of the information contained herein, and same
is submitted subject to errors, omissions, change of price, rental or other
conditions, withdrawal without notice, and to any special listing conditions
imposed by our principals.
© 2014 Cushman & Wakefield, Inc. All rights reserved.
1
SAN FRANCISCO PENINSULA, CA
SUBMARKET
INVENTORY
OVERALL
VACANCY
RATE
YTD LEASING
ACTIVITY
YTD DIRECT
NET
ABSORPTION
YTD OVERALL
NET ABSORPTION
0
19,449
18,408
HT
$1.28
DIRECT WEIGHTED
AVERAGE NET
RENTAL RATE
MF
W/D
$1.20
$0.80
21,657,686
2.6%
669,937
49,480
135,000
San Bruno
459,899
0.0%
11,935
0
0
0
3,600
3,600
$0.00
$0.00
$0.00
Daly City
785,340
0.0%
0
0
0
0
0
0
$0.00
$0.00
$0.00
Milbrae
247,928
0.0%
19,657
0
0
0
0
0
$0.00
$0.00
$0.00
Burlingame
4,646,746
3.5%
91,443
0
0
0
(30,542)
(16,690)
$0.00
$0.00
$0.88
Brisbane
4,399,346
2.7%
264,844
0
0
0
141,569
141,569
$0.00
$0.00
$0.81
568,876
6.1%
18,300
0
0
0
0
0
$0.00
$0.85
$0.00
Foster City
2,509,027
0.8%
0
143,373
0
0
(40)
(40)
$2.00
$0.00
$1.08
Belmont
1,927,794
8.5%
0
0
0
0
(24,160)
(24,160)
$1.19
$1.08
$0.68
San Carlos
4,874,771
2.1%
81,833
61,520
0
0
36,685
40,485
$1.15
$3.07
$1.10
Redwood City
5,799,536
3.6%
174,092
0
0
0
22,456
25,525
$1.86
$0.00
$1.09
Menlo Park
7,255,072
6.0%
254,784
952,142
0
0
95,418
123,974
$1.28
$0.00
$0.84
Palo Alto (Non-SRP)
3,404,978
2.8%
68,203
29,701
0
0
(43,110)
(32,410)
$2.75
$1.43
$0.00
Palo Alto (SRP)
6,446,475
5.7%
458,282
0
111,135
0
(24,684
101,362
$5.51
$0.00
$0.00
265,402
0.0%
0
0
0
0
0
0
$0.00
$0.00
$0.00
65,248,876
3.5%
2,113,310
1,236,216
246,135
0
196,641
381,623
$2.52
$1.27
$0.84
South San Francisco
San Mateo
Redwood Shores
TOTALS
* RENTAL RATES REFLECT ASKING $PSF/MONTH
YTD USER
UNDER
YTD
SALES CONSTRUCTION CONSTRUCTION
ACTIVITY
COMPLETIONS
HT= HIGH TECH MF = MANUFACTURING W/D = WAREHOUSE/DISTRIBUTION
MARKET HIGHLIGHTS
SIGNIFICANT Q3 2014 LEASE TRANSACTIONS
SUBMARKET
TENANT
PROPERTY TYPE
SQUARE FEET
1050 Page Mill Road
Palo Alto – SRP
Machine Zone
High Tech
135,698
230 East Grand Avenue*
South San Francisco
Rinat Neuroscience Corp.
High Tech
106,638
225 Gateway Boulevard
South San Francisco
Solzayme
High Tech
64,242
740 Bay Road
Redwood City
Medarex, Inc.
High Tech
60,862
SIGNIFICANT Q3 2014 SALE TRANSACTIONS
SUBMARKET
BUYER
PURCHASE PRICE / $PSF
SQUARE FEET
TE Connectivity Campus (10 bldgs)
Menlo Park
Facebook
$101,600,000 / $107
952,142
351 Foster City Boulevard
Foster City
Gilead Sciences, Inc.
$5,000,000 / $262
19,080
SIGNIFICANT Q3 2014 CONSTRUCTION
COMPLETIONS
N/A
SUBMARKET
MAJOR TENANT
COMPLETION DATE
BUILDING SQUARE FEET
(% LEASED)
SIGNIFICANT PROJECTS UNDER
CONSTRUCTION
269 East Grand Avenue
SUBMARKET
MAJOR TENANT
COMPLETION DATE
BUILDING SQUARE FEET
(% LEASED)
South San Francisco
Onyx Pharmaceuticals, Inc.
Q4 2014
135,000 (100.0%)
1701 Page Mill Road, Bldg 1 & 2
Palo Alto (SRP)
Theranos, Inc.
Q4 2014
111,135 (100.0%)
*renewal transactions
Cushman & Wakefield of California, Inc. ― Lic #00616335
560 South Winchester Boulevard, Suite 200
San Jose, CA 95128
www.cushmanwakefield.com/knowledge
For more information, contact:
Sethena Leiker, Senior Analyst
408.572.4139
[email protected]
The market terms and definitions in this report are based on NAIOP standards.
No warranty or representation, express or implied, is made to the accuracy or
completeness of the information contained herein, and same is submitted subject
to errors, omissions, change of price, rental or other conditions, withdrawal
without notice, and to any special listing conditions imposed by our principals.
© 2014 Cushman & Wakefield, Inc. All rights reserved.
2