Market Overview A quarterly publication of the San Francisco office market by The Axiant Group 2nd Quarter 2020 PG&E Moves Across The Bay Covid-19 has in essence shut down the PG&E, embroiled in bankruptcy proceedings, has just office leasing market in San Francisco. committed to moving its headquarters from San Francisco Because of shelter in place orders and a real fear of contracting to Oakland as a cost-cutting move. They have leased 600,000 the virus, building tours are non-existent. In addition, the square feet at 300 Lakeside Drive. PG&E plans to occupy the economy has been stilted due to the pandemic. Most tenants space in 2022. As want to see stabilization of the virus or a vaccine before leases expire, considering long term commitments. We are seeing increased they will fill inventory of sublease space flooding the market, particularly the rest of the from the tech industry. building and also have a right to Sublease Space Increases Dramatically purchase the Second quarter vacancy rates increased dramatically from an building. 300 adjusted 6.7% in the 1st quarter to 8.4% in the 2nd quarter. Lakeshore Drive, Gross leasing activity decreased from 1,037,496 square feet built in 1960 in the 1st quarter to 791,518 square feet in the 2nd quarter. for Kaiser as Net absorption was significantly lower again at negative 300 LAKESIDE DRIVE, OAKLAND their company absorpstion of 1,043,366 square feet, compared to 1st quarter headquarters, went through a significant renovation in 2004. with negative absorption of 297,300 square feet. The building, located next to Lake Merritt and one block SAN FRANCISCO SOMA SAN FRANCISCO FINANCIAL CORE The rates below from BART. is 28 stories and has a total of 824,469 square Class A Rents Class B Rents Vacancy Class A Rents Class B Rents Vacancy are accurate but feet. PG&E will also consolidate its Concord and San Ramon 100 11 100 12 do not reflect offices into the new facility. PG&E is currently headquartered 80 real market in San Francisco and occupies close to a million square feet in 9 80 10 conditions as two buildings: 77 Beale and 245 Market Street. It will be selling 60 % Vacancy 60 % Vacancy very few tenants the two buildings which were valued (pre-pandemic) at over 7 8 are touring one billion dollars. $ Rental Rate 40 $ Rental Rate 40 space or signing 5 6 leases during Leasing Activity Drops Dramatically 20 20 the pandemic. With the pandemic entering it’s fifth month, the commercial 0 3 0 4 Once a return leasing market continues to be in limbo. The shelter in place Q319 Q419 Q120 Q220 Q319 Q419 Q120 Q220 to working on order is restricting physical tours, due to a general fear of MARIN Vacancy Central site normalizes, the market will adjust to actual supply and contracting the virus. Virtual tours of office space have South Marin Rents A&B Central Rents A&B Vacancy South demand. Average asking rental rates for Class A space was replaced in-person viewings. The vast majority of transactions 60 $84.87 square foot in the 2nd quarter compared to $84.59 in that occurred in the 2nd quarter were tenants renewing their 14 50 the 1st quarter. The average rental rates for Class B financial existing facilities. There very few groups considering a move 40 core space were $69.40 in the 1st quarter compared to into new facilities. Large blocks of sublease space are coming 12 % Vacancy $69.00 in the 2nd quarter. Class B absorption was negative on the market, as tenants are unable to utilize their facilities 30 at -107,548 in the 2nd quarter, representing a slight increase and companies are significantly increasing the use of video $ Rental Rate 10 20 in absorption from the 1st quarter which was negative at conferencing. In addition, the current economic outlook is -144,034 square feet. South of Market (SOMA) vacancy rates challenging to predict, and many companies have seen a drop 10 8 continued to increase, moving from 6.4% in the 1st quarter in demand for their services. 0 to 8.6% in the 2nd quarter. Q319 Q419 Q120 Q220 OAKLAND CBD | Class A Rents Class B Rents Vacancy Three Embarcadero Center, Suite P-3 San Francisco, CA 94111 80 15 www.axiantgroup.com 70 60 13 50 % Vacancy 40 10 $ Rental Rate 30 20 7 10 0 4 Q319 Q419 Q120 Q220 PENINSULA Class A Rents Class B Rents Vacancy 80 14 70 60 12 50 % Vacancy 40 10 $ Rental Rate 30 20 8 10 0 6 Q319 Q419 Q120 Q220 SAN FRANCISCO MARKET OVERVIEW 2nd Quarter 2020 SAN FRANCISCO SOMA Where’s theSAN Space?FRANCISCO FINANCIAL CORE Class A Rents Class B Rents Vacancy Class A Rents Class B Rents Vacancy 100 11 Submarket 100Direct SF Vacancy Sublet SF 12Vacancy Total SF Vacancy (direct) (sublet) (Total) 80 80 9 Top 10 Build. 335,614 2.70% 325,547 10 2.60% 661,161 5.40% Fin. Dist A 2,792,086 6.00% 1,161,9991 2.50% 3,954,085 6.30% 60 % Vacancy 60 % Vacancy 7 Fin Dist. B 712,188 5.50% 323,452 8 2.50% 1,035,640 8.00% $ Rental Rate 40 SOMA A $ Rental Rate 40 280,055 6.80% 74,045 1.60% 354,100 8.60% 5 SOMA B 489,365 4.20% 507,337 6 4.40% 996,692 8.60% 20 20 0 3 Large Tenants0 in the Market 4 Q319 Q419 Q120 Q220 Most large tenants haveQ319 postponedQ419 majorQ120 decisionsQ220 on leasing space at this time. MARIN Vacancy Central South Marin Rents A&B Central Rents A&B Vacancy South Major Leases Completed in the Second Quarter 60 Tenant Sq. Ft. Address 14 50 Morgan Lewis* 152,293 1 Market Street (Spear Tower) 40 12 First Republic Bank* 116,805 388 Market Street % Vacancy Airtable** 48,812 155 Fifth Street 30 $ Rental Rate 10 San Francisco Aids Foundation* 45,322 1035 Market Street 20 User Testing 45,000 144 Townsend Street 10 8 Bleacher Report* 34,027 153 Kearny Street 0 Allstate Insurance* 27,480 650 Davis Street Q319 Q419 Q120 Q220 Constellation Brands 26.914 101 Mission Street OAKLAND CBD Sitcore* 25,000 101 California Street Class A Rents Class B Rents Vacancy 80 15 Lob.com** 24,950 210 King Street 70 60 13 *Renewal **Sublease ***Expansion ***Oakland lease 50 % Vacancy 40 10 $ Rental Rate 30 20 7 10 0 4 Q319 Q419 Q120 Q220 PENINSULA Class A Rents Class B Rents Vacancy 80 14 70 The Axiant Group Can Help You 60 12 Do you want information about rents and space available in your 50 % Vacancy building? Are you interested in subleasing or terminating your 40 10 lease? Is your lease expiring in the next three years? $ Rental Rate 30 Contact The Axiant Group. We have handled transactions from 1,000 to 1,000,000 sq.ft. in the Bay Area and throughout the 8 20 U.S. The average tenure of our brokers is over 20 years. We 10 have handled assignments for clients including Chevron U.S.A., 0 6 Coblentz, Patch, Duffy & Bass, Oracle Corporation, PG&E, Sutro Q319 Q419 Q120 Q220 & Company, Zurich Scudder Investments, Charles Schwab, Texas John Abel – Principal Pacific Group, Club One, Moss Adams, and many others. T 415.374.2103 [email protected] License #00884176 Three Embarcadero Center, Suite P-3 | San Francisco, CA 94111 www.axiantgroup.com.