MARKETBEAT

San Mateo County Office & R&D Q1 2017

cushmanwakefield.com | 1

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

2013 2014 2015 2016 2017

Historical Average = 9.8%

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

-200.00

-100.00

0.00

100.00

200.00

300.00

400.00

500.00

600.00

700.00

800.00

2013 2014 2015 2016 2017

Net Absorption sf (thousands) Asking Rent, $ psf

SAN MATEO COUNTY OFFICE & R&D

Economic Indicators

Q1 16 Q1 17*

12-Month Forecast

SF Peninsula Employment 1.1M 1.1M

SF Peninsula Unemployment 3.4% 3.0%

U.S. Unemployment 4.9% 4.8%

*Q1 17 data based on the average of January and February values.

Market Indicators

Q1 16 Q1 17 12-Month Forecast

Overall Vacancy 7.4% 7.7%

Net Absorption (sf) 229K 8.4K

Under Construction (sf) 750K 1.3M

Average Asking Rent* $4.58 $4.83

*Rental rates reflect full service asking $psf/month

Overall Net Absorption/Overall Asking Rent (Full Service) 4-QTR TRAILING AVERAGE

Overall Vacancy

Can Demand keep up with Supply?

The Bay Area’s commercial real estate market has started to ease

off the throttle after several years of record growth. Overall vacancy

still rests at healthy levels and average prices are still climbing, but

there is a definite trend: growth is slowing down. The Tech industry,

one of the dominant players in this market, has seen an uptick in

layoffs especially in San Francisco and the Silicon Valley. Some of

the larger tech firms are still hiring but relocating offices to more

affordable states like Texas, Arizona or Washington. Despite these

corrections, the Bay Area’s employment levels are high with just

under four million in its employed work force. Unemployment in the

Bay Area increased 50 basis points (BPS) year-over-year to 3.8%

but remains well below the national average of 4.8%. Thus, the Bay

Area is quite strong and remains the envy of many markets around

the country.

At the close of the first quarter of 2017, San Mateo County’s

combined office & R&D vacancy rested at 7.7%, a 50 BPS increase

from last quarter’s reading of 7.2%. Over the last year the vacancy

percentage has been fluctuating between the low to mid 7’s. Overall,

vacancy has been on the decline since 2009 when it was as high as

17.1%. During this time period over 4.2 million square feet (MSF)

has been added to the inventory (7.8% of the current market base).

There is no question that this is still a high performing market. That

said, tenant demand has recently eased, down to 1.5 MSF at the

close of the first quarter compared to just over 2.1 MSF in the

previous quarter. The majority of this is explained by tenants signing

leases, not just tenants leaving to look elsewhere. Three of the

largest deals signed this quarter were over 100,000 SF. Facebook

took 135,000 SF at 164 Jefferson in Menlo Park, Zoox took 126,000

SF at 1149 Chess in Foster City and Five Prime Therapeutics took

an entire building at the Cove in South San Francisco for 115,000

SF. There is still a lot of activity present, but the market has become

more balanced between landlord and tenant. With an increase in

availabilities expected, it may be moving more in favor of the tenant

for the remainder of the year.

Available sublease space has increased by almost 200,000 square

feet (SF) since last quarter with San Mateo County’s combined

office and R&D market now with a total of just over 1.0 MSF of

sublease space on the market. The sublease to direct ratio has

climbed to 24.7%. With the overall vacancy still below 10%, this

figure is less alarming but can become a problematic if tenant

demand cannot keep up. Existing sublease listings that have been

on the market for some time have started to lower their prices to

stay competitive with newer additions, however, there hasn’t been a

noticeable surge of tenants signing for these less expensive spaces

MARKETBEAT

San Mateo County Office & R&D Q1 2017

cushmanwakefield.com | 2

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

$2.00

$2.50

$3.00

$3.50

$4.00

$4.50

$5.00

$5.50

2013 2014 2015 2016 2017

Class A Class B

Cla

ss A

Cla

ss B

34180

71

59

0-5K

5-10K

10-20K

20K+

551

Listings

$7.24

$5.33 $5.22

$4.79 $4.70 $4.40

$3.86 $3.82 $3.60

$3.27 $3.26

$0

$1

$2

$3

$4

$5

$6

$7

$8

MP RWC FC RWS SM SSF BR BMT/SC DC BUR SB/MB

Average Asking Rate by Submarket (Full Service) MENLO PARK CONTINUES TO COMMAND THE HIGHEST RATES

Availabilities by Size Segment NUMBER OF LISTINGS HAVE INCREASED 10.6% SINCE Q1 2016

Average Asking Rate by Class (Full Service) ASKING RATE GROWTH LOSES MOMENTUM THIS QUARTER

Outlook

Vacancy levels have been fluctuating between the low to

mid 7’s over the last year. Q1 2017 recorded a vacancy of

7.7%.

Net Absorption this quarter was flat, just under 10,000 SF.

There was a good amount of deal activity, however just as

much space came back on the market.

Asking prices are still increasing but at slower rates due to

the increased amount of cheaper sublease space.

yet. In addition, we are tracking a large amount of direct corporate

owned availabilities and indirect sublease space of over 330,000

SF that will hit the books in the second quarter plus an additional

170,000 SF in the second half of the year. The largest contributors

to this future addition of space will be Salesforce.com’s 114,262

SF sublease space at 900 Concar in San Mateo, 100,000 SF from

VISA at 801 Metro Center in Foster City, Informatica’s 84,089 SF

at 2000 Seaport in Redwood City and 67,027 SF at Bayside

Towers in Foster City. Due to these additions, vacancy will likely

rise higher in the next few quarters.

The average asking rent still continues to climb despite the

increase of cheaper sublease space. San Mateo County’s

combined office & R&D market recorded an average asking rent

on a monthly full service basis of $4.83 per square foot (PSF).

This is a slight increase from last quarter’s reading of $4.77 PSF.

Prices have been increasing since early 2010 when the average

rate was as low as $2.63 PSF. While the prices are still climbing

quarter over quarter, they are not climbing as fast as they were in

2014 or 2015, especially now that we have more sublease space

coming on the market.

Now, it’s not time to panic just yet. Net absorption was in the black

again this quarter by just under +10,000 SF thanks to some new

construction completions, most of which were leased. And,

healthy corrections are needed to avoid larger collapses in the

future. Right now demand is staying on par with space additions

but we will monitor movements closely to see if that balance

remains in place.

AVAILABLE SUBLEASE SPACE HAS INCREASED

BY 200,000 SQUARE FEET SINCE LAST

QUARTER.

MARKETBEAT

San Mateo County Office & R&D Q1 2017

cushmanwakefield.com | 3

SUBMARKET INVENTORY

(SF)

SUBLET

VACANT

(SF)

DIRECT

VACANT

(SF)

OVERALL

VACANCY

RATE

CURRENT QTR

OVERALL NET

ABSORPTION

(SF)

YTD

OVERALL NET

ABSORPTION

(SF)

UNDER

CONSTRUCTION

(SF)

OVERALL

AVERAGE

ASKING RENT*

(ALL CLASSES)

OVERALL

AVERAGE

ASKING RENT*

(CLASS A)

Daly City 933,281 7,202 129,188 14.6% -1,068 -1,068 0 $3.60 $4.00

Brisbane 962,719 32,739 256,499 30.0% -91,173 -91,173 0 $3.86 $3.72

S. San Francisco 12,096,096 69,518 394,622 3.8% 197,125 197,125 0 $4.40 $3.64

San Bruno/Millbrae 1,705,911 10,102 6,779 1.0% 12,325 12,325 0 $3.26 $3.69

Burlingame 2,382,738 27,380 230,490 10.8% -77,582 -77,582 767,000 $3.27 $3.63

NORTH COUNTY TOTALS 18,080,745 146,941 1,017,578 6.4% 39,627 39,627 767,000 $3.91 $3.72

San Mateo 7,545,835 331,778 766,096 14.5% -54,347 -54,347 32,655 $4.70 $5.08

Foster City 5,069,657 60,448 405,144 9.2% 22,738 22,738 300,000 $5.22 $5.27

Redwood Shores 6,026,247 175,155 395,643 9.5% 25,588 25,588 0 $4.79 $4.84

CENTRAL COUNTY TOTALS 18,641,739 567,381 1,566,883 11.4% -6,021 -6,021 332,655 $4.84 $5.05

Belmont/San Carlos 2,688,672 122,548 72,377 7.2% -43,156 -43,156 0 $3.82 $3.65

Redwood City 6,722,459 80,730 158,196 3.6% 76,211 76,211 0 $5.33 $6.54

Menlo Park 8,546,017 117,962 345,801 5.4% -58,219 -58,219 205,222 $7.24 $8.93

SOUTH COUNTY TOTALS 17,957,148 321,240 576,374 5.0% -25,164 -25,164 205,222 $5.99 $7.81

CLASS BREAKDOWN

Office Class A 24,113,003 673,105 2,118,398 11.6% -71,144 -71,144 1,004,877 $5.17

Office Class B 5,946,446 173,876 369,239 9.1% -72,710 -72,710 0 $3.97

R&D 21,193,461 483,287 165,640 3.1% 150,357 150,357 300,000 $3.85

TOTAL 54,679,632 1,035,562 3,160,835 7.7% 8,442 8,442 1,304,877 $4.83 $5.17

*Rental rates reflect full service asking $psf/month

Key Lease Transactions Q1 2017

PROPERTY SF TENANT LANDLORD TRANSACTION TYPE SUBMARKET

164 Jefferson Dr. 135,307 Facebook Sobrato Development Co. Relocation Menlo Park

1149 Chess Dr. 126,345 Zoox Harvest & LaSalle Relocation Foster City

111 Oyster Point Blvd. 115,697 Five Prime Therapeutics HCP Life Science Estates Relocation S. San Francisco

171 Oyster Point Blvd. 70,000 Global Blood Therapeutics HCP Life Science Estates Relocation S. San Francisco

Key Sale Transactions Q1 2017

PROPERTY SF BUYER SELLER SALE PRICE / $PSF MARKET

700-900 Concar Dr. 213,346 Rakuten DivcoWest $183,477,560 / $860 San Mateo

1149 Chess Dr. 126,345 Harvest & LaSalle Whitney Investments $36,100,000 / $286 Foster City

2400 Broadway 14,980 Black Mountain Properties Pellarin & Co. $15,000,000 / $1,001 Redwood City

Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources considered

to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy

cushmanwakefield.com | 4

Office & R&D Submarkets San Mateo County

MARKETBEAT

San Mateo County Office & R&D Q1 2017

Cushman & Wakefield is a leading global real estate services firm that helps clients transform the way people work, shop, and live.

The firm’s 43,000 employees in more than 60 countries provide deep local and global insights that create significant value for

occupiers and investors around the world. Cushman & Wakefield is among the largest commercial real estate services firms with

revenue of $5 billion across core services of agency leasing, asset services, capital markets, facility services (C&W Services), global

occupier services, investment & asset management (DTZ Investors), project & development services, tenant representation, and

valuation & advisory. To learn more, visit www.cushmanwakefield.com or follow @CushWake on Twitter.

Copyright © 2017 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple

sources considered to be reliable. The information may contain errors or omissions and is presented without any warranty or

representations as to its accuracy.

Cushman & Wakefield

1350 Bayshore Highway

Burlingame, CA, 94010 For more information, contact: Cole Speers Senior Research Analyst Tel: +1 650 401 2112 cole.speers@cushwake.com