Commercial Real Estate

Red-hot real estate in San Francisco

Office buildings in San Francisco
David Paul Morris | Bloomberg | Getty Images

The red-hot residential real estate market in Silicon Valley might attract all the headlines, but the commercial real estate market just to the north in San Francisco also is booming.

The city's skyline is now dotted with cranes. Between 2009 and 2011, the city issued just 13 permits for cranes. Between 2012 and today? The count spiked to 87.

Those cranes are used to develop office buildings, where asking rents now average $63 per square foot, which is more than double the national average, according to Amber Schiada, director of research at Jones Lang LaSalle, a real estate services company.

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Since the trough in the first quarter of 2010, commercial real estate prices have rocketed up nearly 90 percent, says Schiada.

When prices surge that quickly, some might worry that a bubble is developing, but real estate developers in San Francisco would strongly disagree.

"We believe in this market having long-, long-term legs," says Michael Covarrubias, CEO of TMG Partners. "We don't believe Silicon Valley is going away. We don't believe San Francisco is going away."

Covarrubias adds, "If an adjustment occurs, ironically, it's good for our business. That means prices will come down, and we can go do more transactions."

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The industry that's driving demand for office space in the City by the Bay is, of course, tech.

Salesforce is the leader with 1.6 million square feet. Twitter comes in second, occupying 770,000 square feet. Google follows closely behind, with 740,000 square feet.

High-flying start-ups also control a lot of office space. For example, Uber plans to move into a 420,000-square-foot campus in the Mission Bay area of San Francisco.

Interested in leasing office space in San Francisco? It won't be easy.

Right now, there are 3.6 million square feet of office space under construction, and nearly 60 percent of that space already is pre-leased.

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One potential concern is that the commercial market is so dependent on the health of tech, say real estate analysts.

"When you have one sector that drives the majority of demand, then the risk is that sector falters," says Schiada. "But right now the momentum is really strong."