San Mateo County commercial real estate is hot

Rents meanwhile for both office and R&D space in the county were roughly $5.90 per square foot per month, a figure that’s climbed steadily since at least 2013, when average office rents were closer to $3.50 and R&D space was sub $2, according to a report from Nicole So, a senior research analyst for the Peninsula.

“R&D has consistently been carried by the strong life science presence that exists on the Peninsula,” she writes.

Comparatively, R&D rents in Silicon Valley were $2.80 per square foot while office rents there were $5.27. Office rents in the Oakland metro area were $4.98 and $6.38 in San Francisco, according to Colliers reports.

As another indicator of economic growth, close to 460,000 square feet of net new leases were measured in the second quarter of the year in the R&D sector in the county, a figure that takes into account both those moving in and moving out. That figure for office space meanwhile was 96,700 square feet.

To the south, Silicon Valley reported close to 1.2 million square feet of new leases split between office and R&D uses during that time. And in San Francisco more than 500,000 square feet of office space was vacated, according to Colliers reports.

The largest lease of the quarter in the county was 285,000 square feet in Millbrae, where drug developer Eikon Therapeutics signed a deal to move into an under-construction biotech campus near the train station.

In all, there is 4.6 million square feet of R&D space under construction in the county, a 96.4% increase from last year, according to the report.

But, it notes, “Investment in R&D screeched to a halt in Q2.”

Life science funding during the first two years of the pandemic was “monumental,” but “experts have noticed a slowdown as investors become more selective of the companies they finance and are branching into different property types to diversify their holdings,” the report states.

“However, the Peninsula’s location, talent base, and steady flow of venture capital makes San Mateo County a permanent fixture for life science demand,” it continues.

Nationally, signs of the office market stabilizing were emerging as of the first quarter of the year, according to Colliers. The U.S. office vacancy rate was 15%, on par with the second quarter of 2021. Prior to the pandemic rates hovered below 12%.

The county’s office vacancy was 9.2% in the second quarter while R&D vacancies were 5.1% and industrial vacancies, including warehouses, were 2.7%.

South San Francisco has traditionally been the R&D powerhouse of the Peninsula, fueled by its biotech sector.

But other cities, including San Carlos, Redwood City, Burlingame and Millbrae, hoping to cash in on the lucrative market that boomed amid the pandemic while others faltered, have increasingly looked to usher in the industry.

South San Francisco is slated to place a commercial space parcel tax on the ballot this year, estimated to tax the industry by $50 million yearly if passed. The initiative, the product of signature-gathering campaign, has stirred concern from the City Council that it could accelerate dispersing the sector throughout the county.

Among major projects in South San Francisco, the 790,000-square-foot Gateway of Pacific campus was completed in recent months. That project was roughly two-thirds pre-leased, according to Colliers. The city last week also approved a 2.8 million office and R&D development slated to be built over coming years, one of many now in the pipeline.

In Redwood City, another 2.3 million square feet of office space could come from the Redwood LIFE project, which seeks to overhaul and expand existing offices.

Burlingame, meanwhile, this year received plans for a 1.5 million-square-foot biotech campus. It’s one of many the city is planning for its Bayfront as the City Council there looks to wean itself off tax reliance on the hotel industry.

Millbrae officials hope to accomplish a similar task. The Eikon lease represents the city’s first major step into the life science industry.

corey@smdailyjournal.com

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