Life science lease ups in Mission Bay have made the neighborhood the most sought-after office market in San Francisco, according to a new CBRE report.
The waterfront southeastern neighborhood has a 15 percent vacancy rate, the lowest in the city and well below the 24 percent vacancy rate in San Francisco’s overall office market in the second quarter. Some downtown neighborhoods, such as SOMA and Yerba Buena, are still seeing vacancy rates of more than 30 percent, according to CBRE data.
Mission Bay also commanded annual rents of $90 per square foot, compared with the second quarter citywide average of $77, or $83 for Class A office space. Civic Center had the least expensive asking rents in the city in the second quarter, at just over $61 overall, or $64 for Class A space.
Mission Bay’s popularity stems from several factors, according to Conor Famulener, executive vice president at CBRE. They include the fact that it has only Class A office space, which is appealing to many companies right now during the current “flight to quality” in the market.
“Many tenants are upgrading their workplace environment to create a welcoming and enjoyable experience for their employees to come back to,” Famulener said via email.
“Even with the amount of overall availability on the market, premium and trophy assets are still highly sought after with very little available space to choose from.”
The newer and more “suburban-style” office space in Mission Bay also makes it easier to convert existing offices into life sciences facilities, he said, as DivcoWest is doing with the former Old Navy headquarters it bought from the Gap for $356 million, by far the biggest office deal of the second quarter, according to the CBRE report. It will take until 2023 for the developer to begin leasing the space, according to CBRE, which is the brokerage tasked with filling the property. DivcoWest must first add the plumbing, ventilation, clean rooms and other specialized upgrades that can double or triple the cost of fitting out standard office space.
Despite the additional costs, DivcoWest is not alone, according to CBRE data. More than 640,000 square feet of office space was in the process of conversion to life sciences uses in the greater Bay Area during the first quarter, 2.5 times more than a year ago. Los Angeles was in the process of converting nearly 670,000 square feet into labspace, a three-fold increase over last year and Boston had by far the most office-to-lab conversions in the country with over 3.3 million square feet underway in the first quarter.
Not all the San Francisco conversions are happening in Mission Bay, according to Famulener, but life sciences companies are particularly drawn to the “cluster” created by UCSF’s Mission Bay campus, a “nexus” for innovation and collaboration not easily replicated elsewhere, he said.
Despite the neighborhood’s popularity, it was not the site of any of the three lease agreements over 100,000 square feet signed in the second quarter. The Wells Fargo 10-year renewal of 620,000 square feet at 333 Market Street was particularly notable, as it was the biggest lease signed since the pandemic.
“Any time a large tenant makes a long-term commitment to SF it is a great sign, but especially right now,” Famulener said.
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