San Mateo County’s commercial market is one of the strongest in the Bay Area, with low vacancy rates and strong rental activity, according to new reports from commercial real estate firm Colliers.
Vacancy rates for office, research and development and industrial space combined were 6% at the end of the first half, during which rents rose steadily, according to reports. That compares to nearly 20% vacancy in San Francisco, 14.4% in the Oakland metro area and 6.4% in Silicon Valley, according to reports.
Meanwhile, rents for office and R&D space in the county were around $5.90 per square foot per month, a figure that has been rising steadily since at least 2013, when average office rents were higher. close to $3.50 and R&D space was below $2, according to a report by Nicole So, senior research analyst for the Peninsula.
“R&D has always been driven by the strong presence of life sciences that exists on the peninsula,” she writes.
By comparison, R&D rents in Silicon Valley were $2.80 per square foot, while office rents there were $5.27. Office rents in the Oakland metro area were $4.98 and $6.38 in San Francisco, according to Colliers reports.
Another indicator of economic growth, nearly 460,000 square feet of net new leases were measured in the second quarter of the year in the county’s R&D sector, a figure that takes into account both move-ins and vacates. This office figure was 96,700 square feet.
To the south, Silicon Valley reported nearly 1.2 million square feet of new leases split between office and R&D uses during this period. And in San Francisco, more than 500,000 square feet of office space has been vacated, according to Colliers reports.
The largest lease of the quarter in the county was for 285,000 square feet in Millbrae, where drug developer Eikon Therapeutics signed an agreement to move into a biotech campus under construction near the train station.
In total, there is 4.6 million square feet of R&D space under construction in the county, a 96.4% increase over last year, according to the report.
But, he notes, “investment in R&D came to a screeching halt in the second quarter.”
Life science funding in the first two years of the pandemic was ‘monumental’, but ‘experts have noticed a slowdown as investors become more selective about the companies they fund and diversify into different types of properties to diversify their holdings,” the report says.
“However, the peninsula’s location, talent base, and steady flow of venture capital make San Mateo County a permanent fixture for life science demand,” he continues.
Nationally, signs of stabilization in the office market appeared as early as the first quarter of the year, according to Colliers. The US office vacancy rate was 15%, on par with the second quarter of 2021. Prior to the pandemic, rates hovered below 12%.
County office vacancy was 9.2% in the second quarter, while R&D vacancy was 5.1% and industrial vacancy, including warehouse, was 2.7%.
South San Francisco has traditionally been the peninsula’s R&D hub, fueled by its biotech sector.
But other cities, including San Carlos, Redwood City, Burlingame and Millbrae, hoping to cash in on the lucrative market that boomed amid the pandemic while others faltered, have increasingly sought to usher in the industry. .
South San Francisco is expected to impose a commercial space package tax this year, which is expected to tax the industry $50 million a year if passed. The initiative, the product of a campaign to collect signatures, sparked concern from city council that it could hasten the dispersal of the sector throughout the county.
Among major projects in South San Francisco, the 790,000 square foot Gateway of Pacific campus was completed in recent months. This project has been about two-thirds pre-let, according to Colliers. Last week, the city also approved a 2.8 million office and R&D development set to be built over the next few years, one of several projects currently underway.
In Redwood City, an additional 2.3 million square feet of office space could come from the Redwood LIFE project, which aims to renovate and expand existing offices.
Burlingame, meanwhile, approved a 1.5 million square foot biotech campus this year. It’s one of many city plans for its Bayfront as the city council seeks to wean itself off tax reliance on the hospitality industry.
Millbrae officials hope to accomplish a similar task. The Eikon lease represents the city’s first major step into the life sciences industry.
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