San Francisco Office Rents Jump 27% in Fourth Quarter

San Francisco office rents jumped 27 percent in the fourth quarter from a year earlier as reduced occupancy gains signaled a market “downshift” for 2013, according to broker CBRE Group Inc.

The average rent was $48.83 a square foot, up 5.9 percent from the previous three months, Los Angeles-based CBRE said in a report. It was the 11th straight quarterly advance, according to Colin Yasukochi, CBRE’s director of research and analytics in San Francisco. The rapid pace of growth, driven by large deals by expanding technology companies, may slow as tenants balk at asking rates for top-quality space, the brokerage said in the report.

“San Francisco has been defying the slow economic growth throughout the country, but there is some uncertainty now in the market,” Frank Fudem, a tenant broker and San Francisco-based partner at real estate services firm Cassidy Turley, said in an interview. “When rents get north of $50, people talk differently.”

Newly occupied office space in San Francisco increased by

1.3 million square feet (121,000 square meters) last year, a 38 percent drop from 2011, according to CBRE data. Citywide office costs -- including rent, taxes and service charges -- soared 36 percent, the biggest gain of any global office market, CBRE said in a separate report on Dec. 14.

Technology firms accounted for 55 percent of the 10.9 million square feet of space leased last year, with San Francisco-based accounting for 1.28 million square feet, the biggest annual commitment by a single company since at least 2000, according to CBRE.

Salesforce, Square

Salesforce, the largest maker of online customer-management software, signed five leases, including a fourth-quarter deal for 444,000 square feet at Kilroy Realty Corp.’s planned 350 Mission St. tower. Other large leases in the period included mobile-payment provider Square Inc.’s agreement for 250,000 square feet at 1455 Market St., and software maker Splunk Inc.’s deal for 92,000 square feet at 250 Brannan St., also a Kilroy property, CBRE said.

Finance, insurance and real estate firms haven’t expanded following sharp contractions resulting from the 2008 financial crisis, Jak Churton, a CBRE managing director, said in a telephone interview. Like technology firms, those traditional tenants have configured workplaces with employees sitting side by side rather than at individual desks, reducing space needs. Still, rents may advance as much as 12 percent amid limited new supply, he said.

“We still need to see growth in the FIRE industries, which cut a lot and never rehired,” Churton said. “I don’t think we’re going to see rents moving up in the high double digits, but 8 percent or 12 percent would be a boom outside the Bay Area.”

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