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S.F. Bay Area Has the Top Commercial Real Estate Market in the U.S. for Second Consecutive Year

May 21st, 2014 – in market trends commercial real estate

For the second consecutive year, the San Francisco Bay Area has the best commercial Real Estate market in the U.S., according to a report by the Wells Fargo Economics Group. The report, which was released earlier in May, cited the region’s strong job growth, as well as population jumps, as a primary cause.

Job growth in various technology sectors, such as mobile devices, cloud computing and data analytics has created more need for office space to house these employees. The Bay Area’s job growth has outpaced the rest of the country and unemployment has fallen to its lowest rate in six years, according to the report.

“I don’t think the bubble is about to burst,” Wells Fargo senior economist Mark Vitner said. “The slow-down is still a few years down the road.”

Led by growing companies like Salesforce, Dropbox, Twitter, and Real Estate tech firms like Trulia, commercial vacancy rates in downtown San Francisco, as well as surrounding cities of Redwood City, San Mateo, Mountain View and others in Silicon Valley have dropped.

Office space under construction is barely keeping up with demand, the Wells Fargo report stated. Nearly 3.3 million square feet of office space is being built throughout the city, with the majority in the city’s financial district and South of Market territory. A large chunk of that is in the 61-story Transbay Tower, in which Salesforce signed a lease for 30 floors. The building will be the tallest on the West Coast.


“There seems to be a bit more growth ahead for (San Francisco ands Silicon Valley,” Vitner said. “A lot of the mega projects won’t be completed for a year or two.

While jobs in other industries have moved to other states, such as Texas and Colorado, the tech influx has more than made up for the departures.

With commercial space going for a premium in San Francisco and Silicon Valley, some companies have begun the move to the more affordable East Bay, where economic development has followed a steadier pace. About 20,000 new jobs were created in the region in 2013, and office employment us climbing at a slower — yet still respected — rate of 0.9 percent.

The East Bay is primed for construction,” Vitner said. “Values have risen and office prices have tightened up.”

The Wells Fargo reported cited the move if chocolate manufacturer TCH from San Francisco’s Pier 17 to about 41,000 square feet in Berkeley as a notable migration. Manufacturing employment in Oakland, meanwhile, rose by 2.7 percent; and transportation and warehousing rose by 5.3 percent. That amounted to 3,600 new jobs for a market that has been struggling in recent years.

More and more companies will continue the eastward trend.

“The economics certainly make sense,” Wells Fargo economist Michael T. Smith said. “The East Bay is considerably cheaper. Businesses (that are) trying to cut costs; if (they) can do with not being in such close proximity, than the East Bay is actually a pretty good option.”

Author: Roman Gokhman