Downtown office rents jump

Colliers research analyst Nicholas Matera said the abrupt cost escalation is likely due to the revamped Westlake office building at 520 El Camino Real coming to market, serving a concentrated market starved for high-end commercial space.

He said the availability of the building, which is not yet open but should be soon, drove up asking prices which could flatten over time as more similar Class A office space opens in the new year.

While the forthcoming offices potentially available for rent or sublease in Bay Meadows or at the Franklin Templeton headquarters are not downtown, Matera said the availability could boost the currently limited workspace supply.

Though the additional space may tamp down prices some, with no dip in demand seen on the horizon, Matera said he believes the high price to rent in San Mateo will linger for the foreseeable future.

“Because costs are so high for office space in San Francisco, it’s becoming more and more attractive for companies to come into the Peninsula,” he said. “But I don’t see rates dropping down. They are at a watermark — an all-time high.”

For perspective, asking rates in downtown San Mateo floated at $5.95 this summer.

Brian Beswick, a senior vice president with CBRE, also projected a stable market in downtown San Mateo, though for slightly different reasons.

Citing the prevailing desire among most businesses to open up shop in centrally-located buildings near public transit, Beswick said San Mateo’s design drives its marketability.

“Tenants are very focused on downtown, amenity-rich environments near Caltrain and they are becoming increasingly so,” he said.

Similar to other communities with a rail stop near its central commerce district, Beswick said he expects the cost of doing business in San Mateo to continue to rise.

“San Mateo is just like every other downtown market up and down the Peninsula, which has seen huge rent increases over the last few years,” he said.

Those price increases are paired with limited vacancy rates, according to the Colliers report which shows there are only about 11,000 square feet downtown available to be rented.

Low vacancy rates, high demand and limited supply also make the market a lucrative one for developers who continue to seek opportunities in and around San Mateo, said Beswick.

“There are many developers up and down the Peninsula that are successfully developing Class A assets, which invigorates the daytime population downtown and helps those downtown restaurants and retailers have a better chance of success,” he said.

With the uptick in investment in a market already thriving, Beswick suggested he believes there is no end in immediate sight for the climbing rates seen in San Mateo and nearby communities.

“I would expect the price to remain where it is today or go slightly higher in the next six months,” he said.

Matera shared a similar perspective, barring some unforeseen catastrophic economic event.

“I predict [prices] are going to continue to creep slowly up,” he said. “I wouldn’t foresee them dipping down unless there is some macroeconomic issue.”

austin@smdailyjournal.com

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