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October 28, 2014

Kidder Mathews: Peninsula Office 3rd Quarter 2014

The Registry

Kidder Mathews

The San Francisco Peninsula office market closed the third quarter with 340,208 square feet of positive net absorption. The vacancy rate in the third quarter decreased to 12.5%, down 0.7% from the previous quarter. The third 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 at Constitution Drive, a 1,427,288 square foot purchase in Menlo Park by Facebook, and Rockpoint Group, LLC's acquisition of 901-951 Mariners Island and 999 Baker Way, San Mateo, a 303,257 square feet project. Box.net's lease of 334,000 square feet at the under-construction crossing/900, Redwood City and Intuit's renewal of 210,000 square feet at 180 Jefferson, Menlo Park 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 flow 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 $3.53 to $3.60 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 see 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 in drawing new, major tech tenants until the Peninsula sees the completion of new construction along Caltrain.

Notable Lease TRANSACTIONS

  • Box.net: 900 Middlefield Road, Redwood City - 334,000 SF
  • Intuit: 180 Jefferson Menlo Park - 210,000 SF (Renewal)
  • McDermott, Will, & Emery: 275 Middlefield Road, Menlo Park - 65,000 SF (Renewal)
  • Yelp: 2100 El Camino Real, Palo Alto - 42,683 SF
  • Conviva: 989 Hillsdale Boulevard, Foster City - 33,439 SF
  • Gazillion: 1001 E Hillsdale Boulevard, Foster City - 29,468 SF

Notable Sale TRANSACTIONS

  • Facebook: Constitution Drive, Menlo Park - 1,427,288 SF
  • Rockpoint Group LLC: 901-951 Mariners Island, 999 Baker, San Mateo - 303,257 SF
  • Hines: 1800/1810/1820 Gateway Drive, San Mateo - 215,955 SF
  • Regent West Limited, LP: 333 Gellert Boulevard, Daly City - 61,557 SF
  • Serra Daly City, LLC: 2171 Junipero Serra Boulevard, Daly City - 50,334 SF

Source: CoStar

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

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