OFFICE direct vacancy on the Peninsula rose 35% YOY, reporting a rate of 12.3% across all class types. However, sublease vacancy rates remained stable at 2.5% by the end of Q2 2021. 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 decreased slightly in the second quarter of 2021, reporting an average rate of $6.07/SF full service. Most tenants on the Peninsula seek shorter term leases as they search for flexible options in this market and adjust to future “hybrid” working models.
LEASING ACTIVITY stood at 260,836 SF by the end of Q2 2021. Total Class A lease activity reached 82,038 SF, with sublease activity reporting 34,901 SF by quarter-end.
TWO major office projects were delivered in the second quarter on the Peninsula, pre-leased entirely to Facebook: Burlingame Point (803,000 SF) in Burlingame and Menlo Gateway, located at 125 & 135 Constitution Dr. (495,000 SF) in Menlo Park.
THE SAN MATEO County office pipeline remains strong, with just over 2.37 million SF of office space under construction. Current ongoing projects include Facebook’s redevelopment in Menlo Park (962,400 SF) and Gateway at Millbrae Station in Millbrae (157,694 SF). Looking into the rest of 2021, Stockbridge’s Station 1 & 5 is anticipated to arrive in San Mateo, adding 433,000 SF to this submarket in Q4.
ON June 15, 2021, San Mateo County reopened most businesses and activities, as the state of California fully reopened its economy.
SAN MATEO COUNTY unemployment stood at 4.6% in Q2 2021, while California unemployment reported a rate of 7.5%.
CONTINUED demand for lab space on the Peninsula has fueled office space conversions to life science. In particular, 901 & 951 Mariners Island Blvd. in San Mateo and 2001 Junipero Serra Blvd. in Daly City (all sold in Q2 2021) will become repositioned for life science use.
ASKING RATES dipped slightly in the market, however Kidder Mathews anticipates rates to increase over the next two quarters.
GREATER concessions in the form of free rent and tenant improvement allowances are being offered to tenants, with final lease rates closing near asking rates.