As the city’s tech industry continues to expand, San Francisco is set to see a new peak of office workers this year, overtaking levels last achieved in the 2000 dotcom boom. Commercial rents in San Francisco, as measured by our SEU, grew by 8.5% in 2014, the fastest growth among the US cities studied here. Since 2008 commercial rents have grown 23.5%, second only to Hong Kong (33.2%).
Capitalised tech and creative firms are focused on securing the right space in the right location to attract talent. It is the city itself that is attracting human capital, as much as the new companies setting up in it. The cost of leasing and fitting out office space is of secondary importance to the future of the place itself.
By contrast, ‘traditional’ space users (banks, law firms, etc) are making much more modest lease commitments at a time when many companies and residents are becoming increasingly concerned about being priced out.
On the development side, rising labour and construction costs are taking their toll on new projects. Massive new developments, such as Apple’s new HQ in Cupertino, Facebook’s campus in Menlo Park and Google’s projects around Mountain View, are contributing to rising development costs across the bay area.
San Francisco’s buoyant leasing market fuelled a surge of investment activity last year. The city was second only to Manhattan, recording an increase of 265% over 2013 volumes according to RCA.
Chinese investors have been particularly active in the market – those from Asia as a whole accounted for 42% of purchases by value in 2014.