San Francisco Commercial Real Estate Update - Q2 2021

This newsletter provides you with commercial real estate market research, guidance, and opportunities in the San Francisco Bay Area. Contact us with any questions regarding current market conditions.

Industrial - Warehouse Space Becomes the Golden Goose

The statewide stay-at-home orders triggered a massive rush for warehouse space as consumers increased spending on goods through online marketplaces. For example, the East Bay's warehouse vacancy rate dropped to near historic lows at 4.4%. 2021 industrial leasing activity in the East Bay market remains on pace to match, if not exceed, the all time highs set in 2020.

East Bay Warehouse Leasing Trends

Multifamily - Rebounding Asking Rents, Activity

Multifamily average asking rents for 5+ unit buildings increased slightly compared to Q4 2020, however, it has decreased 19% since the beginning of the pandemic in Q2 2020. Transaction volume has recovered, with 38 closings in Q2 2021 compared to just 17 in Q2 2020, nearly equaling the 44 sold in Q2 of 2019.

Residential Asking Rents, 5+ Unit Assets

Hospitality - Occupancy Rates Recover to ~50%

The hospitality sector continues to recover, and with tourism slowly returning and major conventions like Dreamforce being planned in the near future, things are beginning to look up for hoteliers. The average daily rate for a room remains low across the Bay Area, while an ongoing labor shortage is creating operational issues - despite these hurdles, revPAR (revenue per available room) is expected to increase.

U.S. Hospitality Per Room Pricing and Cap Rate Trends

Office - Signs of Recovery and a Flight to Quality Space

Office vacancy rates in San Francisco rose past 20% in Q2 2021. Still, landlords of premium Downtown Class A space held their ground on asking rents, averaging $84.32/SF/Year. Sublease space on the market shrunk as tenants choose to continue their lease with return-to-work in the horizon. Most recent transactions have been in high quality Class A space while B and C space remain on the market.

Office Asking Rents Vs. Vacancy Rates

Retail - Continues to Face a Difficult Challenge Ahead

Poor employment numbers, supply shortages, and stay-at-home orders delivered a serious blow to brick and mortar retail - Union Square, one of the hardest hit submarkets in the City, has a direct vacancy rate of more than 14% in Q2 2021. However, there are some encouraging signs of recovery ahead - job openings are at a record high, while consumer confidence has risen to a 16-month high.