The West Coast office market has seen a lot of highs and lows in past years, but recent trends and statistics suggest that the coming year will be fruitful for the sector -particularly in some of the region's biggest metros. From the influence of technology driven jobs to the increasing number of in-process construction, here are some of the top trends that are influencing the office market in the major West Coast cities:
1. Technology jobs keep Seattle's economy strong
The office market's strong performance in Seattle is pushing against the national slowing of commercial real estate investment and leasing. In fact, Seattle has some of the nation's strongest office fundamentals. A highly-educated and affluent workforce; a large number of tech, aviation, and life science jobs; and a robust income growth are all great indicators that the market will continue to remain strong.
Recent predictions suggest that the region's job growth will be 2.5% in 2017, up 50% from the previous quarters' forecasts. The tech core is also being viewed as somewhat recession resistant, which should help to stabilize the region's economy and has made global investors confident.
2. San Francisco and Silicon Valley see historically low vacancy rates
Many of the established technology firms are continuing to flourish in San Francisco and Silicon Valley, competing for the region's top talent and most coveted real estate while also working toward becoming market leaders in the industry's new frontiers. Tech companies are striving to form urban campuses in the city, which has paved the way for several leases that were 100,000 square feet or larger during Q1 2017.
The period's largest tech sector lease was signed by Otto, the self-driving truck company owned by Uber, which leased 130,000 square feet at Pier 70, an attractive location because it can accommodate companies with both office and manufacturing space needs.
Vacancy rates in Silicon Valley specifically are well below the lows of the last cycle and historical average, while year-over-year rent growth was still around 6%. All signs lead to a very tight market, even with nearly 7 million SF of new construction in the works.
3. Vacancy rates hold steady in Los Angeles, Orange County, and surrounding areas
The Los Angeles office market's declining vacancies are translating into rent growth that is well above the national average.
At the same time, the Orange County office market has continued to improve, much of the Southern California market. Orange County, for example, has seen vacancy rates hovering around 10% since Q4 2016, while Los Angeles hovers around 11%. The Inland Empire rounded out at 9.1%.
We expect the ongoing trend of positive absorption to continue. It should be noted that some larger building deliveries are on their way in both Los Angeles and Orange County, which will bump inventory and apply some upward pressure on vacancy in the short run.
4. The San Diego market sees continued stability
A strong employment base in San Diego -bolstered by tech, life sciences and healthcare- continues to be the backbone of this market's stability. Also, several top universities provide a deep talent pool, while growth in the working-age population is expected to top all West Coast metros over the next several years.
Thanks to this stability, demand, and its prime location along the Southern California coast, office vacancies in San Diego are holding steady. In fact, the total vacancy rate in the overall San Diego market is 10.6%, a decrease of 103 basis points from this time last year.