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November 29, 2018

6 Things to Watch for in the West Coast Office Market in 2019

What is happening in the West Coast office market in the next year? Things are certainly heating up with vacancies dropping, positive net absorption and asking rents are continuing to climb. Let’s take a look at six things to watch in various cities on the West Coast backed by statistical research.

LA Will Continue Its Transformation

According to Kidder Mathews Q3 Los Angeles Office Market Report, the city saw massive infusions of capital from institutional investors and VC firms, helping the LA office market experience a much-needed transformation and renaissance. The renaissance continued to wax in Q3 2018 and has set the LA office market on a path of continued success.

Increased Attraction of Value-Focused Tenants

The office market in East Bay has remained stable and in Q3, vacancies remained at 6.7 percent with 200,654 square feet of positive net absorption. Rental rates increased by 1.13 percent quarter-over-quarter, but are up 10.19 percent year-over-year. This is anticipated to continue increasing. Despite increasing rents and low vacancy, East Bay continues to attract value-focused office tenants transitioning out of the San Francisco market according to Kidder Matthews.

West Coast Will Remain Appealing for Top Companies

The West Coast offers a prime location along with exceptional weather which is highly appealing to many top companies. There are currently over 200 Fortune 500 companies that reside in Orange County along with many top universities offering an abundance of talented job-seeking graduates.

San Diego Office Market Will Remain Steady

The demand for San Diego office space will remain steady going into 2019 despite the market tightening and asking rents climbing to all-time highs. The vacancy rate hovers at a record low from year-end 2017. The foundation of the San Diego office market remains sturdy with a healthy employment base sustained by life science, healthcare, and tech who serve as the backbone of this stability. Kidder Matthews anticipates the office market will continue to persist and grow in demand, albeit at a slower pace than previous years in the cycle.

Demand for Office Space in San Francisco Will Increase

In Q3 2018, large blocks of office space in San Francisco continued to be swept up. The city saw over 250,000 square feet of construction deliveries in the very active SOMA submarket. Despite the delivery of nearly 700,000 square feet of new inventory, direct vacancy dropped to 4.6 percent for the second straight quarter, further highlighting the large demand for office space in San Francisco.

Silicon Valley Office Market Stays Strong

In Q3 2018, the sales volume of office properties in Silicon Valley nearly doubled quarter-over-quarter. The market experienced a positive net absorption of 661,225 square feet. Although there were no major deliveries in Q3 2018, there were 3.5 million square feet of new construction delivered in Silicon Valley in 2018 and 4.46 million square feet under construction. The office market is expected to continue its robust run into the new year.

Seattle Office Market Will See Continued Growth

Seattle remains high on the list of desirable office investment markets for institutions, targeting the Seattle and Bellevue CBDs, as well as South Lake Union, according to the Kidder Mathews Q3 Seattle Office Market Report. Amazon has continued to expand its Bellevue CBD footprint by leasing a second downtown tower, while rents continue to increase for Class A office —especially for large block space.

View all Kidder Mathews office market research for additional insights and information.

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