MARKET DRIVERS
OFFICE AVAILABILITY on the Peninsula rose 61% YOY, reporting a rate of 19.1% for all class sizes. In particular, sublease availability increased to 4.2% by the end of 2020; up from 2.7% a year prior. However, the Peninsula has not seen nearly the same increase in sublease space as other Bay Area markets, such as San Francisco.
DIRECT ASKING LEASE RATES have remained fairly steady in 2020. Most tenants on the Peninsula seek shorter term leases as they search for flexible options in this market.
LEASING ACTIVITY declined 65% YOY to 1.38 million s.f. by the end of 2020. Total Class A lease activity reached 530,000 s.f., with sublease activity standing at 122,000 s.f. by year-end.
DESPITE A SLOW-DOWN OF OFFICE COMPLETIONS due to COVID-19, close to 137,000 s.f. of prime office space was delivered in San Mateo County during 2020. The largest was Lane Partners’ Broadway Station in Redwood City, adding 102,000 s.f. of Class A space to this submarket. This project was fully preleased to the Chan Zuckerberg Initiative.
THE SAN MATEO COUNTY OFFICE PIPELINE remains strong, with just over four million s.f. of office space currently under construction. The largest projects include Facebook’s redevelopment at Menlo Park (962,000 s.f.) and Facebook’s occupation at Burlingame Point (803,000 s.f.). Looking into 2021, Stockbridge’s Stations 1 & 5 are anticipated to arrive in San Mateo, adding 433,000 s.f. to this submarket.
ECONOMIC REVIEW
COVID-19 caused business closures and company layoffs in 2020. Remote working became the new normal in San Mateo County for several industries. By the end of 2020, California unemployment stood at 7.9%, with San Mateo County reporting 5.1%.
NEAR-TERM OUTLOOK
Landlords have not significantly reduced asking rates, as they anticipate an increase in tenant demand once the COVID-19 vaccine has become widely distributed.