The first quarter of 2014 could be San Francisco’s busiest three months of office leasing since the height of the dot-com bubble 14 years ago. Just two weeks into the year, the San Francisco leasing market has seen three big deals totaling 450,000 square feet of net positive absorption. And it’s likely that the market could see another 400,000 square feet of tenant growth before St. Patrick’s Day. If completed, that would be 850,000 square feet in just the first quarter of 2014 compared to 1.4 million square feet of positive absorption for all of 2013.
Here is what has closed this year: Twitter has finalized a 313,000-square-foot expansion into One 10th St., the back building of Shorenstein Properties’ Market Square complex. Eventbrite is more than tripling its footprint in moving to 155 Fifth St., the top two floors of University of the Pacific’s Dugoni School of Dentistry campus. And Practice Fusion announced that it has leased 100,000 square feet at 650 Townsend St., a direct deal with the building’s owner, Zynga.
A new report by CBRE shows that tenant demand exceeds vacant office space for the first time since 2000. Overall San Francisco’s greater downtown has 5.7 million square feet of vacant space while tenants are in the market for 6.3 million square feet. “The year is off to a very fast start,” said Colin Yasukochi, research director at CBRE.
The shortage is especially bad for companies looking for 100,000 square feet or more — there are currently eight of these available with 11 tenants on the hunt. While six new speculative office buildings are under construction or close to breaking ground — 181 Fremont St., 222 Second St., 535 Mission St., Transbay Tower, 270 Brannan St. and 333-345 Brannan St. — it’s unclear whether the new space will come online in time to meet the demands of fast-growing tenants. “Basically the market is telling us that space is not being built fast enough to accommodate the current demand,” said Yasukochi.
The next big deals on tap will involve household names such as LinkedIn, Pinterest, Trulia and DropBox. Those three tenants alone are in discussions to lease a combined 600,000 square feet — if they can find it. Cushman & Wakefield broker J.D. Lumpkin, who represents the owners of 1455 Market St., home to Uber and Square, said that “there are a ton of big deals and there will be more to come — that is what everybody is talking about right now.”
In a sense, Eventbrite got lucky, grabbing 100,000 square feet that will be delivered this spring. Eventbrite is moving out of 651 Brannan St., where it has about 30,000 square feet. The company has processed $2 billion in gross ticket sales since its founding in 2006. The company’s U.S. head count grew from 199 to 271 in 2013 alone. That is a 36 percent jump. “651 Brannan served its purpose well and is a place the Britelings will remember fondly,” said Benito Bellot, Eventbrite’s senior manager of worldwide facilities. “While we’re excited to move on to the next Briteland, it’s always hard to walk away from a place that inspired so much growth, innovation and culture.”
And of course, a shortage of space translates into higher rents for tenants. Average rents in SoMa have blown past $50 a square foot and are now hovering around $60. A 35,000-square-foot lease at 360 Third St. recently started at $54.50 a square foot with the average rate over the term hitting $64.50.