SAN JOSE — The office markets in the South Bay and East Bay — while feeble in a post-coronavirus era — still outperform San Francisco’s moribund office sector in key benchmarks.
The South Bay and East Bay display a greater degree of health — or less weakness — than San Francisco, in a comparison of the performance of these markets before and after the coronavirus outbreak, according to a report prepared by Avison Young, a commercial real estate firm.
The benchmarks to compare the three regions include the average size of an office lease, the length of a rental agreement and concessions that landlords make to tenants such as free rent, Avison Young determined.
“Silicon Valley is the epicenter of tech with decades of tenants that have withstood various economic cycles with new innovations at the rebirth of each return,” said Dina Gouveia, Avison Young’s regional lead of innovation & insight. “It will be our bellwether coming out of this downturn.”
These are some key barometers of the health of the three markets before and after the coronavirus outbreak, according to the Avison Young research:
— Free rent. Since the coronavirus outbreak, owners of office properties are offering free rent that averages 2.4 months in Silicon Valley, 2.8 months in San Francisco and 3.8 months in the East Bay. Compared to the pre-COVID trends, the average months of free rent have risen 26% in Silicon Valley, jumped 62% in the East Bay and skyrocketed 98% in San Francisco.
— Lease length. Office building owners, since the COVID pandemic, have signed leases that average 62.1 months in the East Bay, 58.4 months in San Francisco and 49.9 months in the South Bay. But the length of the rental agreements is down 7.5% in the East Bay and has dropped 4.6% in San Francisco. In the South Bay, however, the length of the average lease has risen 3.7%, an indication of rising strength.
— Lease size. Since the start of COVID, office property landlords have signed leases that average 17,300 square feet in the South Bay, 14,700 square feet in the East Bay and 13,300 square feet in San Francisco. The size of the average lease has soared 27% in the South Bay, jumped 15% in the East Bay — but has plummetted 16% in San Francisco.
“Prior to the pandemic the suburban markets (the East Bay and South Bay) weren’t as overinflated” as San Francisco, Avison Young executive Gouveia said. As a result, she added, “We didn’t see as much giveback of space” in the South Bay and East Bay compared with San Francisco.