Marcus & Millichap

Bay Area Office Market Report

Second Quarter 2018 Outlook

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Broad Pipeline to Test Office Demand; Economic Growth Remains Elevated

Low unemployment, expanding corporations driving tight marketplace. Benefiting from a host of Fortune 500 companies and a vibrant startup scene, the Bay Area metros have witnessed an upswing in office demand throughout the current cycle. Unemployment has fallen to the lowest level since the late 1990s, encouraging substantial net absorption of existing office space and fostering a wave of development throughout the region. As construction reaches a new cycle high this year, the broad slate of deliveries will prompt moderate upticks in vacancy in San Jose and Oakland as speculative spaces make up a greater portion of new supply than San Francisco. Meanwhile, average marketed rent levels in all three metros will continue to move higher, with gains dependent on rapid absorption of the new supply.

Salesforce Tower, Workday campus highlight largest pipeline in over a decade. Following a year that saw an abundance of construction in San Jose and limited development elsewhere, roles will be reversed in 2018. A pipeline in excess of 12 million square feet will center on projects in San Francisco, most notably Salesforce Tower and the Park Tower at Transbay. Elsewhere, the completion of a tower for Workday in Pleasanton reemphasizes corporate expansion as a way forward in the office market. Moffett Towers II and Central & Wolfe highlight San Jose deliveries this year, which remain focused on innovative layouts amid space constraints.

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