First Quarter 2011 • San Francisco • Office Report
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First Quarter 2011 • San Francisco • Office Report SAN FRANCISCO OFFICE Lic #00832933 One Bush Street, Suite 400 • San Francisco, CA 94104 Tel: 415.445.8888 • Fax: 415.445.8886 www.ccareynkf.com SAN FRANCISCO • OFFICE • FIRST QUARTER TABLE OF CONTENTS Coverage Map 1 Office Update and Q1 2011 in Review 2 Office Market Highlights - Leasing 3 Office Market Highlights - Sales 5 San Francisco Class “A” Focus 6 North Financial District Market Summary 8 South Financial District Market Summary 10 North Waterfront / Jackson Square Market Summary 12 Van Ness / Civic Center Market Summary 13 Union Square Market Summary 14 SoMa Market Summary 15 Agent Roster 19 SAN FRANCISCO • OFFICE • FIRST QUARTER COVERAGE MAP 1 SAN FRANCISCO • OFFICE • FIRST QUARTER OFFICE UPDATE AND Q1 2011 IN REVIEW Driven by the organic expansion of re-emerge; with Sedgwick, Detert, We expect to see continued technology based industries, San Moran, & Arnold leasing nearly improvement in office market Francisco’s economy appears to be 90,000 square feet at 333 Bush fundamentals moving forward, aided in recovery mode. In a matter of 12 Street and Mellon Bank committing by future employment gains and a months the local unemployment rate to 32,000 square feet atSAN 100 FRANCISCOPine bullish OFICEtechnology •FIRST sector. QUARTER Re - has dropped from 10.1 percent to Street. emerging professional services firms 9.5% (according to January figures). benefiting from the overall increase Furthermore, corporate confidence Due to this increase in leasing in business activity will be in a better has led to increased spending on activity many landlords have begun position to review future occupancy information technology, which has in- to pull back on concession packages needs. Look for landlords to turn positively affected the majority of and increase average asking rates continue to push asking rents and local business sectors. The financial citywide which currently average limit lease concessions as space service and professional service $38.21/rsf (all building classes). This options for tenants diminish. sectors have also begun to thaw, trend is especially true in the SOMA filling holes leftover from the submarket, where a handful of economic downturn. creative, brick and timber buildings are commanding starting rents in the VACANCY ▼ The San Francisco office market as mid-$40’s fully serviced. Strong Q1'11 13.54% a whole has benefited from local demand from new and expanding economic stabilization, recording tech tenants, coupled with Q4'10 14.25% 327,701 square feet of positive net diminishing “creative” inventory has absorption through Q1-‘11. The placed a premium on creative space, CLASS A ASKING RENTS ▲ overall office vacancy rate fell from further bifurcating the market Q1'11 $38.21 14.2% to 13.6% quarter-over- between creative and traditional quarter. This increase in occupancy office use. Q4'10 $35.69 has in turn begun to push CBD Class A asking rents up to $38.21/rsf fully In an attempt to revitalize the NET ABSORPTION ▲ serviced (compared to $37.49/rsf Central-Market area, the city of San fully serviced in Q4-’10). Francisco recently approved a Mid Q1'11 ±327,701 Market Tax Break designed to TOP LEASES Leasing activity in the first quarter alleviate increases to payroll tax for was once again led by technology the first six years for companies Sephora companies. Salesforce.com locating within a specified zone in expanded by 55,977 square feet at proximity to the 960-1455 blocks of 525 Market Street ±110,588 123 Mission Street, Idle Games Market Street. Twitter is reportedly in Keker & Van Nest LLP leased 33,252 square feet at 875 lease negotiations for over 210,000 Howard Street, InqMobile leased square feet at Shorenstein’s 1355 633 Battery Street ±90,000 10,925 square feet at 139 Townsend Market Street, located within the tax Sedgwick, Detert, Moran & Street and Aptimus renewed and break zone. This could turn the Arnold LLP expanded its sublease from AON at Central-Market area into the next 333 Bush Street ±89,076 199 Fremont Street for a total of submarket to welcome the 51,429 square feet. As mentioned, expanding technology sector. leasing velocity from San Francisco financial and legal firms has begun to 2 SAN FRANCISCO • OFFICE • FIRST QUARTER OFFICE MARKET HIGHLIGHTS – LEASING Average Asking Rate ¹ 2011 2011 Submarket Net Rentable Area * Vacancy Total Vacancy ³ Total Availability Class A Class B Class C Q1 Net Absorption ² Y-T-D North Financial District 28,530,271 4,027,374 14.12% 18.28%SAN FRANCISCO$39.23 $31.04 OFICE$24.85 •FIRST4,394 QUARTER4,394 South Financial District 24,705,411 2,512,589 10.17% 13.17% $38.46 $32.40 $25.76 155,136 155,136 North Waterfront/Jackson Sq. 6,559,001 735,109 11.21% 13.43% $33.00 $29.75 $24.25 (6,839) (6,839) Van Ness/Civic Center 6,437,028 1,195,522 18.57% 18.68% $27.95 $24.50 $23.65 63,739 63,739 Union Square 5,628,225 484,786 8.61% 13.42% $32.00 $28.65 $25.00 39,692 39,692 SoMa** 10,432,871 2,190,407 21.00% 21.00% $40.21 $35.70 $27.45 71,579 71,579 San Francisco Office Market 82,292,807 11,145,787 13.54% 16.40% $38.21 $31.43 $26.06 327,701 327,701 ** SoMa Inventory includes the following markets: South of the Market; Yerba Buena; Multimedia Gulch; Mission Bay; South Beach; Inner Mission & Potrero Hill Class A Historical Trends Class A Quarter Total RSF Direct Vacant Sublet Vacant Vacancy Absorption Rental Rates ¹ 2007/Q1 46,668,376 3,422,734 441,075 8.3% 91,954 $42.02 Q2 46,663,509 3,286,066 487,191 8.1% 92,522 $43.32 Q3 46,663,509 3,083,395 355,421 7.4% 240,597 $46.82 Q4 46,663,509 2,976,387 352,776 7.1% 154,149 $46.82 2008/Q1 47,322,203 2,754,242 365,733 6.6% 209,188 $46.91 Q2 47,595,475 3,243,799 393,792 7.6% (517,616) $46.94 Q3 47,595,475 3,448,110 744,607 8.8% (555,126) $44.07 Q4 48,151,794 4,587,686 841,335 11.3% (1,236,304) $41.26 2009/Q1 48,219,559 4,968,642 1,122,238 12.6% (661,859) $37.02 Q2 48,219,559 5,009,042 1,273,766 13.0% (190,864) $35.49 Q3 48,219,559 4,995,774 1,178,876 12.8% 108,158 $34.64 Q4 48,337,119 5,439,820 962,606 13.3% (227,776) $34.64 2010/Q1 48,337,137 5,809,095 812,902 13.7% (87,475) $34.78 Q2 48,337,137 5,841,640 876,466 13.9% (96,109) $35.02 Q3 48,337,137 5,908,685 836,353 14.0% (26,932) $35.64 Q4 48,363,449 6,106,107 588,634 13.8% 50,297 $36.69 2011/Q1 48,362,494 5,900,447 514,103 13.3% 206,666 $38.21 CLASS “A” HISTORICAL VACANCY VS. LEASE RATES 1 Rates are quoted as Full service ³ Vacancy is based on vacant square footage 2 Absorption is based on vacant square footage * Includes all classes of office space 3 SAN FRANCISCO • OFFICE • FIRST QUARTER OFFICE MARKET HIGHLIGHTS – LEASING (CONT.) 525 Market Street BY THE NUMBERS SephoraSAN FRANCISCO renewed OFICEand exp •FIRSTanded QUARTER at 525 Market Street for ±110,588 square feet making it the largest lease transaction of the first quarter. Significant Leases (By Square Footage) Largest Leases Tenant Lessor (Sublessor) Address Sq. Ft. Sephora ( E ) ( R ) NY State Teachers Retirement System 525 Market Street 110,588 Keker & Van Nest, LLP ( R ) Brannan Street Investors 633 Battery Stret 90,000 Sedgwick, Detert, Moran & Arnold LLP Brookfield Properties 333 Bush Street 89,076 Goodby, Silverstein & Partners ( R ) Prime Holdings Inc. 720 California Street 81,065 Williams Sonoma Smith Lucille H Trust 100 North Point Street 60,000 Wells Fargo Insurance Services Shorenstein Company LLC 45 Fremont Street 57,081 Salesforce.com ( C ) ( E ) Sumitomo Corporation of America 123 Mission Street 55,977 Catholic Healthcare West ( R ) McCarthy Cook & Company 185 Berry Street 55,000 Aptimus ( E ) ( S ) ( R ) AON 199 Fremont Street 51,429 CA Department of General Services ( R ) Manulife Financial 575 Market Street 36,324 Idle Games Hudson Pacific Properties 875 Howard Street 33,252 WSP Flack + Kurtz ( C ) ( R ) Ashforth Pacific/GE Pension 405 Howard Street 33,155 Largest Pending Leases Tenant Lessor (Sublessor) Address Sq. Ft. Twitter Shorenstein Company LLC 1355 Market Street 210,000 Hellman Freedman, Farallon Capital, Pisces, Offit Morgan Stanley One Maritime Plaza 175,000 Capital ( R ) Farella, Braun + Martel, LLP ( R ) Shorenstein Company LLC 235 Montgomery Street 122,000 Zynga ( E ) TMG Partners 650 Townsend Street 80,000 Moss Adams Hines 101 2nd Street 30,000 Q1 2011 Top Contiguous Spaces (vacant/ available in the next 12 months) Address Lessor (Sublessor) Sq. Ft. 100 Van Ness Avenue National Electric Benefits Foundation 597,443 1355 Market Street Shorenstein Company LLC 518,232 888 Brannan Street Wells Fargo 400,254 680 Folsom Street TMG/ Rockwood Capital 400,000 370 Third Street Lincoln/Lane Partners 367,027 500 Terry Francois Blvd. Sobrato Development 278,512 50 Fremont Street TIAA-CREF 257,696 ( S ) = Sublease ( R ) = Renewal ( E ) = Expansion ( C ) = Cornish & Carey Commercial Newmark Knight Frank Involvement 4 SAN FRANCISCO • OFFICE • FIRST QUARTER OFFICE MARKET HIGHLIGHTS- SALES (CONT.) BY THE NUMBERS 1355 Market Street SAN FRANCISCO OFICE •FIRST QUARTER Shorenstein Company LLC purchased 1355 Market Street & 875 Stevenson Street (±1,105,000 square feet total) from the ADCO Group, the largest purchase of the first quarter.