3 Reasons Bay Area Skyline Space is So Hard to Come By
According to an eye-opening JLL report fresh off the presses this morning, Oakland and S.F. trophy space is getting gobbled up at a historic rate. Here's what you need to know.
1. Take-up of Space Highest in 10 Years
Trophy towers in S.F. witnessed record absorption with a 4.5% take-up of space in Q1. Trophy product boasted the third highest net absorption behind New York and Chicago in the last year. S.F. also has the nation’s third highest office skyline occupancy rate (behind Bellevue and Pittsburgh) at 92.6%, according to JLL’s 2015 Digital Skyline report. JLL VP of research Amber Schiada (left) has seen a significant flight to quality in the last 12 to 18 months among a variety of office tenants (particularly in tech), pushing vacancy to historic lows in many trophy offices.
2. Non-Core Assets Could Be New Targets
Average pricing for top S.F. product is $651/SF so far this year, a more than 7% increase over 2014 pricing. Foreign capital chasing product is having a major impact on pricing, particularly Chinese money (225 Bush, pictured, traded to a mainland Chinese developer for $350M). The influx of new capital will continue to drive prices up, and JLL managing director Rob Hielscher says it will force domestic institutional investors to evolve their strategies, increasingly partnering with foreign investors and diversifying into non-core and non-CBD assets.
3. Oakland Rates Near Historic Highs
Average rates in the 11 buildings considered by JLL to be Oakland’s skyline assets in Q1 were $38.64/SF, or 8.4% more than downtown Oakland overall. More businesses crossing the bay in the last 12 to 18 months has caused an upward pressure on rents, Amber says, with skyline rents in Oakland up by 11.8% in Q1. There are currently no skyline office buildings under construction in the city, and the last major office development in Oakland was completed in 2008. Now Oakland's downtown office vacancy is its lowest level (10.1%) in seven years, with only one big block (50k SF) available today out of the 5M SF that comprises Oakland’s Skyline set.
