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.
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