Executive summary
- Q1 office sales volume rises 109% year-over-year
- average price per square foot reaches new Q1 record ($769)
- Blackstone grabs 211 Main Street in largest Q1 office sale
- 3 major office projects on track for Q2 delivery
After a fruitful year marked by increased interest from both national and Asian investors, the San Francisco County office sales market had a busy first quarter in 2017. An unemployment rate of 3.5% as of February, coupled with a growing population and booming technology sector, is driving demand across all asset classes, pushing prices upward.
We used Yardi Matrix data to analyze all sales for office buildings larger than 50,000 square feet (see ‘Methodology’ section) to close in the county in Q1. We also looked at new office projects scheduled for completion in the second quarter of 2017, using the same data source. Unsurprisingly, the San Francisco County office sales market boasts the highest average price per square foot out of all the California markets we analyzed in Q1 ($769), more than six times the average price recorded in Sacramento, for example. Furthermore, while Los Angeles County registered the highest Q1 sales volume (22 transactions totaling $1.50 billion), San Francisco came in a close second, with only 8 trophy office sales totaling $1.35 billion.
Y-o-Y Sales Volume More than Doubles in Q1
Eight major office transactions closed in San Francisco County in the first months of 2017 for a total of $1.35 billion–a 109% increase in sales volume year-over-year and six times higher than the volume recorded in Q1 2013 ($225 million). Though dollar volume dropped 23% compared to the fourth quarter of 2016, it was still the second-best Q1 in the past four years in terms of sales volume. At number one sits Q1 2015, when 7 office properties traded for a total of $1.48 billion. By comparison, the highest quarterly sales volume in the past four years was recorded in the third quarter of 2014, when 12 assets changed hands for $1.85 billion, at an average of $565 per square foot.
Average Price per Square Foot Sets New Q1 Record
In terms of average price per square foot, the first quarter of 2017 was the best Q1 in the past four years for the San Francisco County office sales market (our calculation of the average price excluded partial stake, ground lease and portfolio deals). The average per-square-foot price for trophy office buildings changing hands in the county reached $769 in Q1 2017, a 21% increase year-over-year and nearly double the price recorded in Q1 2013 ($411). Prices have been rising constantly in the area over the past four years, and San Francisco is becoming increasingly appealing to both national and offshore investors–The City by the Bay was a top destination for Asian investors in 2016, surpassed only by New York City and Los Angeles in terms of trophy office sales. The average price per square foot in San Francisco in Q1 was also nearly three times higher than the average price recorded in Los Angeles ($769 versus $294).
$351M Sale of 211 Main Street Tops List of Largest Q1 Deals
There were 8 office deals over $5 million and exceeding 50,000 square feet to trade on the San Francisco office market in the first months of 2017, for a total sales volume of $1.35 billion. The largest office deal of the first quarter closed in March, when the Blackstone Group paid $351 million to acquire the 18-story high-rise at 211 Main St. from CIM Group. The 417,266-square-foot Class A office building is fully occupied by the headquarters of banking and brokerage giant Charles Schwab. Another notable deal was Rockpoint Group’s $345 million acquisition of 100 Pine St. from the Alaska Permanent Fund in February.
See the full list of San Francisco County trophy office sales below:
What’s Next? Office Projects on Track for Q2 Delivery
Though no large office developments were completed in the first quarter of 2017, activity will be picking up the pace in the following months. Three office projects exceeding 50,000 square feet in size are currently underway in San Francisco, with completion scheduled for the second quarter of the year. The largest development under construction is Lincoln Property Co.’s 19-story, 372,000-square-foot office tower at 350 Bush St. The Heller Manus-designed glass-clad tower will incorporate the historic San Francisco Mining Exchange Building as a grand lobby and main entry for the new construction. The project, scheduled for delivery in late May, is seeking LEED Platinum certification from the USGBC and will feature 360,000 square feet of office space and a street-level galleria. Last summer, Lincoln Property Co. landed the first tenant at its new 350 Bush St. tower–Twitch, a top video game streaming website owned by Amazon Inc., will occupy 185,000 square feet of space at the site, according to the San Francisco Business Times.
Methodology
- Parameters: over 50,000 square feet, over $5 million in sale price;
- Transactions recorded up until April 12th, 2017;
- We excluded ground lease, ownership stake, controlling interest and portfolio deals from our calculation of the average price per square foot;
- Data source: Yardi Matrix.
