Commercial land market still popping

The deal was the biggest of the fiscal year’s second quarter according to a Peninsula report from commercial real estate company Colliers International, which highlighted another booming year of investment and economic development.

“The demand for new product, along with heavy leasing activity and prospective tenants in the market indicates that San Mateo County will continue to thrive as limited vacancy and strong asking rates remain firm through the first half of the year,” said the report authored by research analyst Mark Alferman.

Detailing the health of the market, low overall vacancy rates plunged from 5% last quarter further down to 4.3% in the most recent quarter, while asking rents across most sectors also rose over the same period of time.

To that end, office asking rents increased by almost 20 cents to $5.95 per square foot in the current quarter and at the same time industrial asking rents jumped by 10 cents to $1.85 per square foot. Only the research and development asking rents took a slight dip, dropping by about 9 cents to $4.63 per square foot in the most recent quarter, according to the report.

For the office market, the asking price growth marked a 15% jump from the previous fiscal year, according to the report. The largest transaction on the market was Goldman Sachs selling the 304,885 square feet of space it owned in two buildings at 400 and 450 Concar Drive in San Mateo for $320 million. Diamond Investment Properties acquired the site for about $1,050 per square foot, according to the report.

Marking another notable transaction on the office market, C-III Capital Partners purchased The Crossroads — a 406,085-square-foot development spanning from 1825 to 1855 S. Grant Ave. in San Mateo, where interior renovations were recently completed and exterior improvements are expected soon, said the report.

For his part, Alferman noted the momentous level of investment seen on the local office market.

“The strength of the office leasing market on the San Francisco Peninsula continues to defy gravity beyond the expectations of many market observers. Strong demand remains even in the face of record high rents,” he said, while projecting the trend to continue through the rest of the year.

On another note, Alferman questioned the continued viability of the industrial market which has seen asking prices jump to an extent that deals are becoming less frequent.

“The industrial market on the San Francisco Peninsula may have hit an apex. As landlords continue to push pricing upwards, deal velocity in the market has begun to slow down with many freight and warehousing users unwilling or unable to step up to this pricing for high quality space this quarter,” he said in the report.

On the industrial market, outside of the Facebook deal, the biggest new deal was transportation and logistics company Tramo subleasing roughly 57,500 square feet from Goodwill in South San Francisco at 405 S. Airport Blvd., according to the report.

And while Alferman questioned the sustainability of the industrial market’s high rental rates, he noted the rarity of such a resource will likely continue to keep prices high.

“A shrinking supply and an irreplaceable geographic location will keep San Mateo County industrial stock at a premium,” he said in the report.

Available space in the research and the development market remains low as well, said the report, despite the ongoing construction which has been particularly focused on the northern stretch of the Peninsula.

Research and development vacancy rates sat at 2.7 percent by the end of the last quarter, continuing a nearly four-year trend over which vacancy rates floated near 3 percent, the report said.

But with the spike in construction, particularly with cranes still dotting the Bayshore region east of Highway 101 in Burlingame and South San Francisco, Alferman questioned whether available space will eventually make a dent in rental prices.

“With more R&D developments underway in the area, it will be interesting to see if demand continues to outpace supply as it has the first half of the year,” he said. “For the balance of 2019, we expect to see asking rates remain strong.”

austin@smdailyjournal.com

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