Presented by Beacon Economics
Welcome to The Regional Outlook, a forecast for five of California’s largest regional economies. Each quarter, find updated analysis that goes beyond the state and national level to present a snapshot of employment, home prices, consumer spending, personal income, and other leading economic indicators within key areas of the state. Visit your region of interest and subscribe for email delivery.
The San Francisco (MD) economy continues to shine with the lowest unemployment rate in the state. The region is also atop national rankings in its commercial real estate market with commercial vacancy rates among the lowest and the cost of rent among the highest in the United States.
SF Employment Continues Its Rise
From August 2017 to August 2018, the unemployment rate in the San Francisco Metropolitan Division (MD) decreased 0.7 percentage points, falling from 2.9% to 2.2%. Over the same period, total employment in the region increased to 1.1 million, growing by 23,200 nonfarm jobs or 2.1%. San Francisco (MD) outpaced the neighboring East Bay, where annual job growth was 1.8%, but fell short of the South Bay, where employment grew at a rate of 3.8% annually.
The Administrative Support sector experienced the most growth at 5.8%, adding 3,700 jobs from August 2017 to August 2018. The Professional, Scientific, & Technical Services sector saw the largest absolute gain, expanding by 5,700 jobs, or 3.1%. Other Services posted the greatest year-over-year loss, shedding 4.7% of its employment, or 1,900 jobs.
As the housing shortage dilemma worsens across California, it would make sense for employment in the Construction sector (+0.3%) to have picked up more steam than it has. Yet, construction labor in San Francisco (MD) is tight, employment is volatile, and overall construction costs are among the highest in the state.
Beacon Economics is forecasting San Francisco’s (MD) unemployment rate to end the year at 2.3% and show little change in 2019. Nonfarm job growth in the region will finish the year at approximately 2%, dipping below that pace in 2019.
Commercial Rents Remain High, Vacancy Low
From the second quarter of 2017 to the second quarter of 2018, the average cost of rent for Office space in San Francisco (MD) increased 4.2% to $61.08 per square foot annually. At the same time, the vacancy rate for Office properties decreased 0.3 percentage points to 9.8%, among the lowest in the nation.
By comparison, the Office vacancy rate in the East Bay was 14.5%, while in the South Bay it was 17.6%. Building permits issued for San Francisco (MD) Office properties in the second quarter totaled $51.6 million.
The average cost of rent for Retail space in San Francisco (MD) increased 3.1% to $37.39 per square foot, and the vacancy rate increased 0.2 percentage points to 3.2% from the second quarter of 2017 to the second quarter of 2018. The average cost of rent for Warehouse/Distribution properties in the region increased 2.4% to $10.14 per square foot, while the vacancy rate decreased 0.2 percentage points to 4.9%. Warehouse development has been nonexistent in the area since 2011.
** The San Francisco MD includes San Francisco and San Mateo Counties. This is a change from previous editions of “The Regional Outlook San Francisco” when Marin County was also included.