Market Overview A quarterly publication of the San Francisco office market by The Axiant Group 1st Quarter 2018 ing to Kennedy Wilson and JV partner Takenaka. The building has 1st quarter leasing activity increased. 21 floors, with each floor comprising 12,586 square feet. There is also a 10,000 square foot outdoor roof deck on the adjacent his- Rental rates for both A and B class torical retail banking hall. With this new commitment, WeWork space increased across the board. Two will have leases totaling over one million square feet of space in San Francisco; their Bay Area lease total will exceed 1,750,000 new buildings officially open 100% leased, caus- square feet. They are also rumored to be looking at additional ing expected record net absorption. space at the Embarcadero Center where they already occupy over 100,000 square feet. WeWork also has substantial commit- Vacancy Decreases Rents Increase ments in other markets: they are the second largest user of space First quarter leasing activity hit historical highs in San Francisco as in New York City, leasing over 2.9 million square feet of space two new buildings were added to the office space inventory. Sales (only JP Morgan leases more for now). Not surprisingly, We- Force Tower 415 Mission (1,400,000 sq. ft.) and 350 Bush Street Work now ranks as the fourth most valuable US-based startup (447,000 sq.ft.) both buildings opened 100% leased. Vacancy rates (only Uber, Airbnb and SpaceX have higher valuations). A recent dropped from an adjusted 8.3% in the 4th quarter to 8.0% in the comparison was made between WeWork and Boston Properties. 1st quarter. Gross leasing increased from 1,254,103 square feet Both companies are valued at roughly $20 billion. Boston Proper- in the 4th quar- ties’ net income is $450 million and they own what is estimated to SAN FRANCISCO SOMA SAN FRANCISCO FINANCIAL CORE ter to 2,417,051 be approximately 50 million square feet of office space. WeWork Class A Rents Class B Rents Vacancy Class A Rents Class B Rents Vacancy square feet in the owns no real estate, has millions of dollars in lease obligations 80 11 80 12 1st quarter. Net and was not profitable in 2017. It is difficult to understand how 70 70 absorption was at both companies have the same valuation. Coincidentally, Boston 60 9 60 10 1,880,794 square Properties Chairman Mortimer Zuckerman was an early private 50 50 % Vacancy % Vacancy feet, substantially investor in WeWork. 40 7 40 8 greater than 4th $ Rental Rate 30 $ Rental Rate 30 quarter absorp- Is Facebook Eyeing Park Tower? 20 5 20 6 tion number of Several large tech tenants have been -18,766 square 10 10 competing for the yet to be completed feet, for the rea- 0 3 0 4 Park Tower complex at 250 Howard Q217 Q317 Q417 Q118 Q217 Q317 Q417 Q118 sons mentioned Street. Park Tower is a 43 Story, 772,960 above. MARIN Vacancy Central square foot building due for completion South Marin Rents A&B Central Rents A&B Vacancy South in the 4th quarter of 2018. It represents 60 14 Average asking rental rates for Class A space increased to $71.37 the only large block of space available in the 1st quarter from $69.34 in the 4th quarter. Average rental 50 rates for Class B financial core space increased from $61.84 in in the market. Park Tower is located 12 on Howard Street between Beale and 40 the 4th quarter to $63.57 in the 1st quarter. Class B absorption % Vacancy was positive at 135,997 square feet. This was an increase from the Main. Facebook, Google and Amazon 30 10 were all looking at space in the building. $ Rental Rate 4th quarter absorption of 14,405 square feet. A rendering of Park Tower 20 Facebook was rumored to be commit- 8 WeWork Leases 400 California Street and ting to 200,000 square feet in the building but decided to lease 10 Continues on Expansion Path the entire building. This decision was made just weeks before 0 6 WeWork is a company that provides shared workspaces primar- news stories surfaced about Facebook compromising member Q217 Q317 Q417 Q118 ily for technology startups. Their massive expansion continues in information to third parties, significantly impacting their stock OAKLAND CBD San Francisco as they commit to leasing 400 California Street, value and image. Facebook’s timing could have been better. We Class A Rents Class B Rents Vacancy 60 15 by an excess of 250,000 square feet. The building was formerly will wait and see if a lease with Facebook moves forward. owned and occupied by Union Bank, who recently sold the build- 50 13 40 | % Vacancy Two Embarcadero Center, Suite 430 San Francisco, CA 94111 30 10 www.axiantgroup.com $ Rental Rate 20 7 10 0 4 Q217 Q317 Q417 Q118 PENINSULA Class A Rents Class B Rents Vacancy 60 14 50 12 40 % Vacancy 30 10 $ Rental Rate 20 8 10 0 6 Q217 Q317 Q417 Q118 SAN FRANCISCO MARKET OVERVIEW 1st Quarter 2018 SAN FRANCISCO SOMA Where’s theSAN Space?FRANCISCO FINANCIAL CORE Class A Rents Class B Rents Vacancy Class A Rents Class B Rents Vacancy 80 11 Submarket 80 Direct SF Vacancy Sublet SF Vacancy12 Total SF Vacancy 70 70 (direct) (sublet) (Total) 60 9 Top 10 Build. 60 758,175 6.8% 115,960 10 1.00% 874.135 7.90% 50 Fin. Dist A 50 3,282,045 7.30% 283,476 .60% 3,565,523 7.90% % Vacancy % Vacancy 40 7 Fin Dist. 40 855,838 6.80% 177,382 81.40% 1033,220 8.20% $ Rental Rate 30 SOMA A $ Rental Rate 30 120,181 4.40% 82,867 3.10% 203,048 7.50% 20 5 SOMA B 20 592,409 5.9% 90,220 6 .90% 682,629 6.80% 10 10 0 3 Large Tenants0 in the Market 4 Q217 Q317 Q417 Q118 Q217 Q317 Q417 Q118 Tenant Sq. Ft. MARIN Vacancy Central Facebook 750,000 South Marin Rents A&B Central Rents A&B Vacancy South 60 14 Google 400,000 Amazon 200,000 50 12 Pivotal Labs 125,000 40 Nixon Peabody 100,000 % Vacancy 30 10 Asana 100,000 $ Rental Rate Mulesoft 80,000 20 8 10 Significant Leases Completed in the First Quarter 0 6 Tenant Sq. Ft. Address Q217 Q317 Q417 Q118 WeWork 251,722 400 California Street OAKLAND CBD Class A Rents Class B Rents Vacancy Twitter* 214,950 1355 Market Street 60 15 New Relic 74,000 188 Spear Street 50 Samsara 71,000 350 Rhode Island 13 Pattern Energy Group 63,000 1088 Sansome Street 40 % Vacancy Google 57,000 2 Harrison Street 30 10 Scribd, Inc. 48,800 333 Bush Street $ Rental Rate 20 Hall Capital Partners LLC 43,692 One Maritime Plaza 7 10 *Renewal **Sublease 0 4 Q217 Q317 Q417 Q118 The Axiant Group Can Help You PENINSULA Do you want information about rents and space available in your building? Are you interested Class A Rents Class B Rents Vacancy 60 14 in subleasing or terminating your lease? Is your lease expiring in the next three years? 50 Contact The Axiant Group. We have handled transactions from 12 1,000 to 1,000,000 sq.ft. in the Bay Area and throughout the U.S. 40 % Vacancy The average tenure of our brokers is over 20 years. We have 30 10 handled assignments for clients including Chevron U.S.A., Coblentz, $ Rental Rate Patch, Duffy & Bass, Oracle Corporation, PG&E, Sutro & Company, 20 8 Zurich Scudder Investments, Charles Schwab, Texas Pacific Group, 10 Club One, Moss Adams, and many others. 0 6 John Abel – Principal Q217 Q317 Q417 Q118 T 415.374.2103 [email protected] License #00884176 Two Embarcadero Center, Suite 430 | San Francisco, CA 94111 www.axiantgroup.com.