by Bill Wilson, Senior Broker, TRI Commercial
“There must be more to life than having everything” – Maurice Sendak
Positive Absorption (net gain) this year for the San Francisco market is 2.2 million square feet versus 1.6 million square feet a year ago. That translates into the vacancy factor in the Central Business District going from 5.9% last quarter to 5.3% currently; which means landlords in Class A space can ask for rents nearly double the $35/square feet that was normal five years ago. Have you doubled your revenue?
Gone are the days when tenants could go South of Market to receive a discount of 30-40% compared to asking rates North of Market. All of the action is South of Market. The only new construction North of Market is happening at 350 Bush Street (in back of the Russ Building) where Lincoln Properties is constructing 435,000 sq.ft. to be delivered shortly after 2015. Roughly 5 million square feet is in the pipeline for construction South of Market but the space is already 40% leased!
Solutions to the problem of rising rates vary from reducing suite size and reflecting smaller staff needs to being able to shrink necessary space by 10-20%. Some tenants are downgrading to Class B and looking forward to being able to open the windows to let in natural air and saving $5-10/square feet. In San Francisco, areas with relatively inexpensive rents are the Van Ness Corridor, North Waterfront and Union Square submarkets. Then there’s the ultimate solution: To move out entirely, or in part, from San Francisco. Oakland is the recipient of several non-profit agencies due to this trend. In April, Gordon & Reis moved about one-quarter of their headquarters operation, consisting largely of support staff, to 1111 Broadway across the Bay. There are 460,000 commuters who spend valuable time on BART daily to get to S.F. from the East Bay.
By the time you get this letter, the Giants will hopefully be on their way to another Championship, the stock market will have scared everyone again with its volatility, Europe will be closer to a recession threat, Ebola will be a household name and San Francisco rents will still remain high. Take a minute to call and tell me your real estate situation. We can find a solution!
Visit Bill Wilson’s website – http://sfspaceadvocate.com/main/