San Francisco Industrial Market

Due to its small size, San Francisco’s industrial market contains a limited supply of developable land. Therefore, developers have limited new industrial construction projects there.

“The Mission Bay/China Basin and Bayview/India Basin areas are the only remaining areas in San Francisco where developable industrial land is available,” says Mark Bollozos, director of research for BT Commercial in San Francisco. “Conversions of industrial land to residential and retail uses have been seen as an increasing trend lately. Smaller [industrial] building sales also remain active in this market.” Continued low borrowing costs, the increased demand by owner/user type investors and the industrial real estate pinch indicate that sales activity for small-size industrial and warehouse properties will remain strong in the City by the Bay.

New industrial development in San Francisco is very limited but two notable redevelopment projects currently taking place could yield new product in the city’s industrial market. Catellus Development Corporation will likely reposition a portion of the Mission Bay/University of California at San Francisco campus area for R&D use. Mission Bay is the San Francisco-based company’s 303-acre mixed-use development located south of the city’s financial district and adjacent to SBC Park, the San Francisco Giants’ stadium. Elsewhere, Lennar/BVHP LLC expects this spring to begin redevelopment of the once-contaminated Hunters Point Naval Shipyard, a portion of which could be turned into industrial space.

With the tight conditions, the San Francisco industrial/warehouse market features mostly mature product, which is utilized predominantly by service industry tenants requiring close proximity to metro-area stores.

The demand for owner/user types of buildings has increased due to continued low interest rates. Last year, Delancey Street Foundation bought the 110,000-square-foot warehouse building at 5700 3rd Street and will occupy the entire facility for its own use.

According to Bollozos, the majority of San Francisco industrial leasing activity in 2003 involved facilities 20,000 square feet and smaller. Roche Bobois USA, a high-end interior furnishing company, did lease 30,000 square feet at 1598 Custer Avenue in the fourth quarter of last year. The average asking rate remained firm between 69 to 73 cents per square foot in 2003. San Francisco’s overall industrial vacancy stood at 5.9 percent at the end of last year, up 20 basis points from 2002.

“Throughout 2003, the San Francisco industrial market experienced little change in fundamentals,” says Bollozos. “Overall net absorption, while still a negative number (negative 37,742 square feet), was a significant improvement from 2002 when net absorption was a negative 310,218 square feet.”

Bollozos says that the ongoing construction of the Third Street Light Rail Project along the Third Street Corridor will likely spice up the sector’s fundamentals by generating economic opportunities and jobs in the Mission Bay/China Basin and Bayview/India Basin areas.


©2004 France Publications, Inc. Duplication or reproduction of this article not permitted without authorization from France Publications, Inc. For information on reprints of this article contact Barbara Sherer at (630) 554-6054.




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