As the local economy keeps booming, growing companies continue snapping up lucrative downtown office space across San Mateo County, contributing to the dearth of available commercial square footage available throughout the Peninsula, according to real estate experts.
Vacancy rates remain historically low, while prices creep higher, further solidifying what has been an extremely tight and expensive market for businesses looking to rent office space in San Mateo County, according to a recent report from Colliers International.
The average price for a square foot of office space in San Mateo County is $4.40, up 4 percent from last quarter, and roughly 20 percent last year, while overall vacancy rate has decreased to roughly 7 percent, which is the most densely populated the region has been in more than a decade, according to the report.
Dan Matteucci, managing director with Newmark, Cornish & Carey in San Mateo, said the current market is the hottest, most lucrative environment he has witnessed in the seven years he has been in the local commercial real estate market.
“It is very much a landlord-driven game,” he said.
A trademark of the current market, said Matteucci, is the demand by companies to occupy trendy, expensive locations in downtowns throughout the county.
Many workers at the successful technology companies driving the local economy desire to work in cities near the Caltrain line, and enjoy the amenities of an urban environment surrounding their office, said Matteucci.
Much of technology industry is anchored locally from the northern tip beginning in the south of Market Street region in San Francisco spanning down to the Palo Alto, and many municipalities between are attempting to capitalize on a centrally located Caltrain station and thriving downtown to woo companies looking to set up shop, said Matteucci.
“What is really driving the market is downtown corridors around Caltrain,” he said. “Companies are locating themselves in and around downtown areas.”
He cited San Mateo and Redwood City as local cities which have effectively leveraged their location and assets to their advantage.
An average square foot of office space in San Mateo costs $4.54, up 18 cents since the last quarter, with a vacancy rate of roughly 6 percent, according to the report.
In Redwood City, office space is less expensive, as the average square foot costs $4.17, but room is harder to come by as there is roughly a 4 percent vacancy rate, according to the report.
Companies which have substantial enough assets to rent or acquire the limited office space downtown along the Peninsula are prone to engaging in unconventional methods to retain their prime locations, said Matteucci.
Typically, as successful companies grow beyond the limited square footage available downtown, they will look to relocate to larger, more spacious suburban office parks in remote regions, he said.
But due to the increased emphasis on maintaining a stake in a location easily accessible by public transportation, some companies are showing a willingness to forgo the traditional growth pattern, and instead splinter their workforce into multiple separate, smaller offices spread across downtowns, said Matteucci.
This phenomenon can lead to a higher concentration of successful businesses snapping up the most lucrative properties, and leaving limited options left over for smaller upstarts, he said.
As space in established regions becomes increasingly harder to come by, Matteucci said, some companies are looking to branch out to new cities in hopes of finding more available and affordable rental units.
He cited Burlingame as one city which is receiving more interest from companies not able to set up shop in some of the more expensive and tight nearby markets, such as Foster City, Redwood Shores, San Mateo and Redwood City.
There are limited, prime commercial real estate options in Burlingame, as there are only eight buildings offering roughly 100,000 square feet of available space, but the average rental price of $3.15 per class A square foot is relatively affordable compared to the rest of the county, according to the report.
Matteucci said he has enjoyed the recent stretch of prosperity and sees little opportunity that the market might slow down in the near future.
“Are we in this for a lot longer? I sure hope so,” he said. “If we get another 24 to 36 months, that is great.”
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