Fueled by a strong tech economy, San Francisco’s office rents are on a hot streak, surpassing Manhattan’s to become the highest in the nation.
A report from real estate services firm CBRE Group shows that San Francisco’s average asking rates surpassed Manhattan’s in 2015. The last time this happened was during the "Internet gold rush" more than a decade and a half ago, and even that was short-lived after the dot-com bubble burst in 2000, NYTimes noted.
“The market here in San Francisco has been largely driven by the tech industry, which has really been one of the growth leaders coming out of the recession,” CBRE’s director of research and analysis Colin Yasukochi told the Times. “Manhattan is more dominated by financial services firms who were not on that same growth trajectory coming out of the recession.”
Demand from the tech sector pushed asking rates up 14.3 percent for the year to $72.26 per square feet and vacancy down to 5.6 percent. Marketwide leasing activity was 9.4 million sq. ft., down slightly from 2014, but still strong considering the low vacancy rate. In 2015, of the 14 deals over 100,000 sq. ft. totaling 2.2 million sq. ft., seven were leased by tech firms.
The CBRE rankings are based on average rents.
The report predicts that rents are likely to further increase in 2016, given the lack of availability – albeit at a slower pace – and are on track to break their all-time high of $74 that was set in 2003.
Non-tech tenants may have to leave the market as rents continue to increase, the report warned.
“The rent trend appears durable, but will be tested during the next economic downturn since the high tech industry has historically been volatile and San Francisco office rents are closely linked to tech industry growth,” Yasukochi told NBC Bay Area.
At $3,490, rents for a one-bedroom apartment in San Francisco are currently the highest in the country, online apartment rental firm Zumper reports.