The San Francisco Peninsula office market closed the second quarter with 227,998 square feet of positive net absorption. The vacancy rate in the second quarter decreased to 10.9%, down 0.7% from the previous quarter.
The second quarter saw a considerable amount of leasing activity, especially in the southern and mid-county submarkets, with several transactions in both San Mateo and Redwood City. The quarter's largest sale transactions were the Clearview Business Park, a 277,022 square foot purchase in San Mateo, by Deutsche Asset Wealth Management, and Harvest Properties' purchase of 1400-1450 Fashion Island, a 272,000 square feet property. Walmart's lease of 106,099 square feet at 950 Elm Avenue, and Genentech's renewal of 49,024 square feet at 611 Gateway Boulevard, South San Francisco were two of the major leases. Tenant demand continues to remain strongest in the core downtown submarkets, in close proximity to CalTrain, as tech firms compete for the young employees living in San Francisco. Demand for smaller offices suites (10,000 square feet or less) has been steady.
The southern San Mateo County submarket has experienced a pick-up in leasing activity, whereas the northern and central county submarkets saw a moderate amount of midsize transactions. The vacancy rate for Class A space on the Peninsula has been showing the biggest decline in recent quarters, whereas class B and C space is moving at a slower pace. The average asking rent for San Mateo County increased, rising from $3.47 to $3.53 per square foot on a full service basis as a result of another quarter of steady demand.
While San Mateo County is currently not losing major tenants to other markets, San Francisco and the South Bay markets are continuing to be the focus of the largest lease transactions, as the Bay Area's largest tech firms compete for the employee bases in these areas. San Mateo County is expected to continue to struggle to draw new, major tech tenants until the Peninsula sees the completion of new construction along Caltrain.
Notable Lease TRANSACTIONS
Walmart: 950 Elm Avenue, San Bruno 106,099 SF (New)
Genentech: 611 Gateway Boulevard, South San Francisco 49,024 SF (Renewal)
Apttus, Inc: 1400 Fashion Island Boulevard, San Mateo 40,668 SF (Expansion/Renewal)
Xtime: 1400 Bridge Parkway, Redwood City 38,751 SF (Renewal)
WageWorks: 1100 Park Place, San Mateo 37,937 SF(Renewal)
Model N: 1600 Seaport Boulevard, Redwood City 37,000 SF (Sublease)
Notable Sale TRANSACTIONS
Deutsche Asset Wealth Management: Clearview Business Park , San Mateo 277,000 SF
Harvest Properties: 1400-1450 Fashion Island, San Mateo 272,100 SF
Griffin Capital Corp: 1-2 Circle Star Way, San Carlos 207,896 SF
TIAA-CREF Global Separate Real Estate Company,LLC: 200 Middlefield Road, Menlo Park 41,810 SF
Swift Real Estate Partners: 1241 Hillsdale Boulevard East, Foster City 39,768 SF
The Carlye Group: 280 Utah Avenue, South San Francisco 38,865 SF