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October 28, 2014

Kidder Mathews: Peninsula Industrial 3rd Quarter 2014

The Registry

Kidder Mathews

The San Francisco Peninsula saw 124,038 square feet of negative net absorption this quarter, and 257,299 square feet of gross absorption. The market continues to stay productive with deals of all sizes completed throughout the Peninsula industrial market in the third quarter of 2014. San Mateo County experienced minimal occupancy losses as well which is not due to a lack of demand on the Peninsula, but rather a shortage of quality available space.

Vacancy on the Peninsula went up 20 basis points, ending the quarter with a 4.60% total vacancy rate. Rental rates averaged $0.86 per square foot, NNN. Demand continues to remain strong throughout the Peninsula.

The third quarter saw a few notable transactions throughout the Peninsula market. Menlo Park had the largest transactions, including 304-306 Constitution Drive, a 1,427,288 square foot, 7-building purchase by Facebook. The third quarter's largest lease transaction took place on 1050 Page Mill Road in Palo Alto, a 142,306 square foot industrial building purchased by Machine Zone.

The Peninsula market, to some extent unaffected by the slow recovery of our national economy, continues to be a safe haven for real estate investment dollars. The third quarter saw a good amount of lease activity as well as some large sale transactions.

The demand for industrial acquisitions continues to be strong as interest rates remain historically low, despite the slight increase in the past year. This small uptick in interest rates has been a cause for some concern from user and investor buyers, especially with the small and shrinking supply on the Peninsula. We forecast more demand from a diversified mix of both users and investors this year. This will continue to force vacancy down and rental rates and property values to increase at a steady pace.

Notable Lease TRANSACTIONS

  • Machine Zone: 1050 Page Mill Road, Palo Alto - 142,306 SF
  • Rinat: 230 E Grand Avenue, South San Francisco - 106,400 SF
  • Classic Party Rentals: 1635 Rollins Road, Burlingame - 106,400 SF

Notable Sale TRANSACTIONS

  • Facebook/Tyco: 304-306 Constitution Drive, Menlo Park - 1,427,288 SF
  • Refrigeration Supplies Dist: 285 Lawrence Avenue, South San Francisco - 9,840 SF
  • Pentair: 899 Broadway Street, Redwood City - 64,000 SF

Figures and information for this report look only at industrial buildings larger than 10,000 square feet. Source: CoStar Data

For more information contact: Reed Payne, Executive Vice President, Brokerage 408.970.9400

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