Marcus & Millichap

Bay Area Office Research Report

Bay Area Metros, Second Quarter 2017

Access Full Report Subscribe

Pickup in Vacancy Amid Broad Rise In Development; Job Creation Moderating

Slowing job growth straining office demand. While newly created jobs remain overwhelmingly skewed toward traditional office-using professions, the rate of growth has slowed dramatically. As a result, net absorption has dropped considerably, pressuring office operations throughout the Bay Area. While the more affordable Oakland market has weathered the slowdown well amid a slower pace of development, San Jose and San Francisco have witnessed a sharp contraction in leasing, prompting net absorption to fall far short of construction. As a result of elevated deliveries and sliding demand, vacancy will turn up sharply over the coming year, while asking rents will rise as higher-quality spaces come onto the market.

Speculative development and planned campuses prompt multidecade supply injection. The wave of construction, triggered mostly by expansions from Apple, Nvidia and Palo Alto Networks, as well as Salesforce Tower in San Francisco, will push deliveries to the highest point since the late 1990s. In aggregate, more than 15 million square feet will come online, with more than two-thirds of the space delivered in San Jose. While more than 9.6 million of the space is pre-leased, the sheer volume of new spaces will prompt a sharp upswing in vacancy as net absorption falls well below supply growth through the remainder of 2017.

Access Full Report Subscribe