The current market correction on larger office space has yet to trickle down to small office space in the CBD. Office space under 2000 square feet is still at a premium, with not many offerings currently in class “B” space. We have noticed a slight uptick in small class “A” offerings. In the 2,500-6000 square foot range we have experienced a slight uptick in offerings in both class A & B space. With a larger inventory on hand then with the sub 2000 square foot market, you can expect landlords to be more willing to offer incentives in order to get a deal done.
Several large pieces of office space has recently flooded onto the market. Companies like Bear Stearns and UBS have have dumped large pieces onto the sublet market. A market correction is in the making especially if you are in the 8000 square foot and up market, if you are looking for larger footprints it is most certainly becoming a tenants market. Landlords that were already offering incentitives such as free rent and generous TI packages are beginning to soften on their asking rates.
After four straight years of rental increases in the CBD we have seen asking rates “plateau” and the beginning of a modest reduction in asking prices from landlords who are becoming increasingly “jittery” about the current economic conditions. We are seeing geater concessions from landlords in the form of free rent, lower asking rates, and larger tenant improvement packages creeping in to more and more deals. We expect this trend to continue through the remainder of 2008.
The San Francisco Office market ended the first quarter
2008 with a vacancy rate of 9.2%. The vacancy rate
was down over the previous quarter, with net absorption
totaling positive 310,625 square feet in the first quarter. Vacant
sublease space decreased in the quarter, ending the quarter at
1,398,546 square feet. Rental rates ended the first quarter at
$36.91, an increase over the previous quarter. A total of 1 building
delivered to the market in the quarter totaling 5,690 square
feet, with 3,620,810 square feet still under construction at the end
of the quarter.
Tishman Speyer has scored another tenant for its speculative office tower at 555 Mission Street, signing law firm Gibson Dunn & Crutcher LLp to a 60,000 square foot lease. The ten year lease averages about $70 dollars a square foot. Gibson Dunn will occupy floors 28-31.
Activity is picking up at the top of the signature Pyramid building, where asking rates in the high $70s and low $80’s are viewed as a bargain compared with the $95 and $100 asking rates at One Market and One Maritime Plaza. Medley Capital grabbed the 39th floor space (4,500 square feet).
1,200 employees of google are moving into a 20 million dollar “green” renovation of 200,000 square feet of office space formally occupied by GAP. The 197,00 square foot office on three floors. The buildout of the space is a model of sustainable office construction. Also included is one of Google’s famous free gourmet cafes.
Wintery chill has descended over downtown San Francisco.
As speculation grows that the U.S. economy may be slipping into a recession, the central business district leasing market has slowed to a near standstill.
Tenants, emboldened by the prospect of lower rents, are putting off signing deals unless they absolutely have to. Landlords, many of whom bought their buildings during the height of the investment market in the second half of 2006 and the first half of 2007, are not ready to make concessions at a time when the city’s market fundamentals seem solid.
The stalemate is reflected in the sluggish 2007 numbers and the slow start to 2008. Positive absorption rates in downtown Class A buildings dropped off in 2007 to about 500,000 square feet, down from 1.4 million square feet in 2006, according to Cornish & Carey research. Rent remained static for the fourth quarter, leveling off to about an average of $46.82 for Class A space.
Very low Commericial Loan delinquency rates in California and across the country show that the commercial real estate market has steered clear - so far - of the economic storms wreaking havoc in the residential sector.
In a report released Friday by the California Mortgage Bankers Association, called the state’s loan delinquency ratio in the third quarter “rock solid at .05 percent.” Just four loans totaling $39 million out of an $84 billion portfolio were more than 30 days delinquent.
Small tenants (less than 5,000 square feet) make up more than half of the tenants in San Francisco. This percentage increases each year. In the year 2007, more than 56% of all tenants in Downtown San Francisco were “small tenants”. DiChiara & Wright is the only brokerage firm that specialize in small office spaces. Representing both tenants and building owners that provide small offices. “Your small office is a big deal to us”.