San Francisco Commercial Real Estate News

Category: San Francisco Commercial Real Estate News (206)

Mar

SF CRE News: Increase in Office Sublease Space – Sign of “Tech Wreck” or Corrective Adjustment?

Source: The Registry
By: David Goll
Date Posted: March 30, 2016

While some San Francisco real estate observers worry a sizable increase in office space available for sublease may signify a potential property “tech wreck” in the works, others view an increasing amount of available space as more of a corrective adjustment that’s creating some benefit.

According to a report from Cushman & Wakefield, the amount of office space being subleased in San Francisco, including the Financial District and SOMA, jumped from 1.3 million square feet in the third quarter of 2015 to nearly 1.7 million square feet in the fourth quarter. By the end of February, that number had climbed to 1.9 million square feet. As of March 21, 2016, JLL reports that this type of sublease availability has climbed to 2.28 million square feet in San Francisco.

About half of the space available for sublease is coming from technology companies, according to the JLL and Cushman & Wakefield reports. That translates to 45 of the 138 subleases in San Francisco, or close to 1.1 million square feet. And while 41 percent of companies gave contracting or consolidation as their reasons for subleasing space, 26 percent cited relocation inside the San Francisco city limits, while 22 percent are moving all or part of their businesses out of the city, according to Cushman.

“We saw the trend begin to intensify in the fourth quarter [of 2015],” said Christina Clark, senior vice president in the San Francisco office of Cresa Corporate Real Estate. “Our clients were starting to evaluate whether they were occupying too much space, what would be the best way to handle and utilize it. Others are wondering if the high costs are going to continue and whether it was worth getting into a seven-year agreement with unfavorable terms.”

As a result, Clark said leasing activity began to slow as companies “pushed the pause button.”

“We have been monitoring this trend since the second quarter of 2015,” said Andrew Nicholls, advisor in Cresa’s San Francisco office. “That’s when we noticed a distinct shift in the market.”

Colin Yasukochi, director of research and analysis in the San Francisco office of CBRE Group, the Los Angeles-based commercial real estate firm, said the subleasing trend became especially notable late last year, coming mainly from the tech sector. The reasons are varied.

“Some are expanding into new offices here in San Francisco, while some just have excess space they don’t need right now,” Yasukochi said. “There’s a variety of reasons. And what we are seeing, especially with high-quality subleased space, is that it’s not staying on the market that long. It frequently is leased within three to six months.”

Yasukochi said he doesn’t regard the current inventory of subleased space—which covers all grades of office space, but mostly A and B—to be an excessive amount.

“If there was, you would see much bigger discounts offered on space being leased directly from landlords, like 30 or 40 percent,” he said. “When the market is healthy, the discounts are not that large. Subleased space is increasing, but we’re not seeing large discounts.”

According to his research, Yasukochi said the amount of subleased space in downtown San Francisco has jumped from 1.1 million square feet in October to 1.7 million square feet in March. Unlike other observers, who predict that figure will grow substantially by year’s end, he is not quite as certain of that outcome.

“It could grow, but this is an evolving situation and that has yet to be determined,” Yasukochi said. “We will see if the supply continues to exceed demand.”

JLL’s figures tell a similar story today. Five of the largest eight sublease spaces are already in some form of discussions for the space to be subleased. Those top five available spaces are Charles Schwab’s 305,502 square feet at 215 Fremont, Dropbox’s two spaces at 185 Berry for a total of 212,000 square feet, Bingham McCutchen’s 98,000 square feet at 3 Embarcadero Center and Yahoo’s 60,000 square feet at 343 Sansome, which was just subleased to Airwave, a drone software platform company. If all these negotiations result in a new tenant, that would drop the available space to 1.6 million square feet, a 30 percent drop from where we are today. One thing to note, however, according to JLL’s report, is that 43 of the 138 available spaces came to the market in the last month, a 45 percent jump in absolute number of spaces. Some of this space includes nearly 25,000 square feet from Medium at 760 Market, nearly 34,000 square feet from Zenefits at 303 2nd Street, 18,000 square feet from Riverbed at 680 Folsom and 11,000 square feet from Box at 100 1st Street.

Asking lease rates for Class A office space downtown being offered directly from landlords averages about $76 per square foot annually, a figure which grew 14 percent in the fourth quarter of 2015, Yasukochi said. Though it would depend on the condition of the space being subleased by another tenant, asking lease rates would likely be about $65 per square foot annually this spring, he added.

“If it’s in good shape and there’s lots of interest in it,” Yasukochi said of space at those rent levels, which are reflective of the 10 to 15 percent discounts being offered.

Drew Arvay, senior vice president in the San Jose office of Cushman & Wakefield, said he’s aware of the glut of space available for sublease in San Francisco, but said it’s a different dynamic in Silicon Valley—or cities in Santa Clara, San Mateo and southern Alameda counties. It even goes by a different name.

“We call it shadow space,” Arvay said. “There are instances where companies are seeking to sublease space, but it often is on a short-term basis.”

On the other hand, Arvay said some of the Valley’s largest tech giants that occupy millions of square feet of office space might keep a few hundred thousand square feet empty for anything from storage to future productive use when they expand operations again.

“How companies are using space has really shifted in recent years,” he said. “We went from private offices and hallways to cubicles. The cubicles started out averaging 250 to 275 square feet of space per person, but then shrunk to 160 square feet. Now, cubes are disappearing and being replaced with even smaller work pods or benches, or shared space.”

But Silicon Valley companies are offsetting the downsized workplace trend by continuing to hire employees by the thousands, so they are reluctant to shrink their office footprints too substantially. Arvay said Gensler, the San Francisco-based architecture, design and planning firm, has dubbed Silicon Valley companies as the most efficient users of work space.

“That’s not to say we are immune from having surplus space that could be available for subleasing, but this is still a different situation from downtown San Francisco,” he said.

He added there is another dynamic at work in Silicon Valley and elsewhere in the corporate world over the past three years since Yahoo Inc. CEO Marissa Mayer famously ended her company’s popular work-from-home policy for employees.

“Employers have discovered innovation is born of collaboration, of employees talking to one another during the work day, talking over lunch,” Arvay said. “The money they used to save on renting space by having employees work in their pajamas from home was being lost by a decrease in developing innovative ideas.”

Both Clark and Yasukochi said they see another potential storm cloud on the horizon for San Francisco employers: the possible decrease in VC funding, mainly affecting the tech sector.

“We are hearing that while companies are still getting funded, some are getting less funding or having trouble getting another round of funding,” Clark said. “VC funding is critical, so we are watching that very closely. That trend really started accelerating in the fourth quarter, making tenants seriously consider whether they need so much space.”

Link to article: Sublease Conundrum

Mar

San Francisco CRE News: Is the Bay Area slated for an office market slowdown?

Source: The Registry
By: Michael Hopek
Date Posted: March 21, 2016

Cushman & Wakefield regional director Robert Sammons forecast mixed housing and office markets for the next five years during a recent industry meeting of Bay Area real estate developers, investors, builders and lawers, expressing his concern that changes are needed if San Francisco is to continue growing.

The meeting of the San Francisco Real Estate Roundtable was presented by law firm Hanson Bridgett and dealt with the question of how long San Francisco’s real estate market boom could last. Sammons started the meeting by asking “How is everyone feeling about the economy right now?” The majority of audience members was undecided on the question, with a few skeptical about a positive economic future.

Sammons pointed out that the Bay Area is in its seventh year of expansion. “It’s about time for a downturn of some sort, whether that’s a correction or recession, that remains to be seen,” he said. San Francisco is in the top 10 cities for job growth, while San Jose is number one according to Cushman & Wakefield’s research.

The massive job growth due to the expansion of the technology industry has caused an influx of labor on a grand scale, he explained. From 2012 to 2015 the Bay Area population increased by almost 400,000 largely because of new technology-related labor growth. In the same time period the Bay Area added about 30,000 multifamily units, one for about every 13.5 people, meaning the region is dramatically lacking in housing growth.

Sammons stressed that this deficit is the real problem for residential housing in the city. “We are a mile behind in trying to build housing in this market,” he said. There are currently 21,000 units under construction and about another 53,000 proposed according to his company’s research.

The influx of jobs has impacted the office market, as well. That, Sammons said, makes it difficult for businesses to find affordable office space. Last year the city added 21,600 new office space positions at a growth rate of 5.6 percent. About 60 percent of the tenants in the office market are technology firms.

Of those technology businesses that lay off people because of poor company performance, some wind up putting space on the market to save money. Sammons said there is 1.9 million square feet of space available in the San Francisco market for sublease. There is currently 7.1 million square feet under construction or entitled in the city.

Sammons noted the impact of Proposition M, the1986 law that limits San Francisco’s office space development to roughly 875,000 square feet a year. Over time the city has built up a reserve of 1.8 million square feet in the city’s allocation fund, but that reserve is nearly gone. “We are going to be out of allocation this year, plain and simple,” he said.

Cushman & Wakefield forecasts that city office vacancy rates will continue to increase every year through 2021. Sammons suggested that the 9.9 percent office vacancy rate forecast is “not that bad.” The firm also predicts job growth to slow due to the high cost of living and renting office space, and the city’s inability to keep up with tenant housing demand.

Sammons concluded the presentation by stating that companies might start looking elsewhere for rental space in cities like Austin, Salt Lake City or eastern coastal cities. “It’s just too expensive to live here. So unless something changes, unless we are able to build more housing and pull back on price points, this is the pretty standard forecast,” he said.

Link to article: SF Office Slowdown

Mar

Tech CRE News: Google subleases 407,000 square feet in South San Francisco–expands outside Googleplex

Google’s Medical Technology Division, Verily, Subleases Large Office Campus in South San Francisco

Source: CoStar
By: Steve Wells
Date Posted: March 9, 2016

Verily, formerly called Google Life Sciences, has subleased 407,000 square feet from Amgen to establish a separate headquarters in South San Francisco for the new Google division, which is gearing up to provide pioneering technology for medical research and devices.

Verily will occupy the former Onyx Pharmaceuticals office campus consisting of three Class A office buildings located at 249, 259, and 269 E. Grand Ave.

The planned move 30 miles north from Google’s Mountain View, CA, headquarters, will place the new firm within a global hub for the biotech industry. It also takes a big chunk of the nearly 700,000 square feet of excess space Amgen Inc. (NASDAQ: AMGN) is seeking to sublet in the area. Amgen closed its Onyx Pharmaceuticals subsidiary last year after acquiring the cancer drug developer in 2013 for $9.7 billion.

Alexandria Real Estate Equities, Inc., (NYSE: ARE), a real estate investment trust that focuses on science and technology campuses in urban locations, owns the three buildings. The recently developed campus also has two land parcels representing nearly 400,000 square feet of potential expansion space.

An initial 400 Verily employees are expected to relocate to the new campus by the end of this year with the expectation that the total number at the location could grow to as many as 1,000 through future expansions.

“We are honored that Verily has chosen to expand into one of Alexandria’s world-class collaborative science and technology campuses,” said Stephen A. Richardson, chief operating officer and San Francisco regional market director of Alexandria. “Through our long-term relationship with Google, which dates back to 1998, we have been able to provide Verily with highly curated, innovative and integrated campus solution, which will help support its mission to use technology to better understand health, as well as prevent, detect and manage disease.”

Google Office Campus Sublease in SSF

Mar

National CRE News: Bank Lending Soared in 4th Quarter

Economic, Regulatory Headwinds May Slow Lending Pace in 2016

Source: CoStar
By: Mark Heschmeyer
Date Posted: March 2, 2016

The total amount of commercial real estate loans held by U.S. banks and savings and loans saw a noticeable jump in the fourth quarter of 2015 over the previous quarter. The total amount of CRE loans outstanding held by FDIC-insured institutions increased 3.1% to $1.85 trillion at year-end from three months earlier. That followed an increase of 2.7% from mid-year to third quarter, according to the FDIC.

The $1.85 trillion year-end 2015 total CRE loans outstanding compares to $1.63 trillion at the last peak of the CRE markets at the end of June 2007.

Multifamily loans continued to increase at the fastest pace quarter to quarter, going up 4.6% to $15 billion from third quarter 2015 to the year-end total of $344 billion.

Non-residential commercial real estate lending totals jumped by $25 billion (3.6%) to $733 billion during the same timeframe.

Construction and development loan totals jumped by $8.88 billion (3.3%) to $275 billion.

The asset quality of CRE loans on bank books also continued to improve. Delinquent CRE loan balances declined for a 22nd consecutive quarter. At year-end, total delinquent CRE loans on the nation’s banks’ books equaled $19.8 billion, down 5.5% from the third quarter of 2015.

At the last peak of the CRE markets, delinquent CRE loans totaled $27.6 billion.

The total dollar volume of foreclosed upon CRE properties on banks’ books equaled $8.3 billion at year-end, down 12.2% from the previous quarter. However, in June 2007, the CRE foreclosed total stood at just $2.5 billion.

Banks appear to be benefitting from the strong market for real estate in selling any repossessed properties. For all of 2015, banks posted gains of $215.7 million on the sale of foreclosed properties. That came despite posting a loss on sales in the third quarter of 2015.

The nation’s largest CRE lender, Wells Fargo Bank, which holds about $134 billion in CRE loans, posted a gain of $245 million last year on the sale of foreclosed properties.

FDIC-insured institutions reported aggregate net income of $40.4 billion in the third quarter down from $43 billion in the second quarter of 2015.

Of the 6,270 insured institutions reporting third quarter financial results, more than half (58.9%) reported year-over-year growth in quarterly earnings. That also is down slightly from the previous quarter.

Is a Bank Lending Slowdown on the Horizon?

Total loans and leases at banks increased by $199 billion during the fourth quarter of 2015, approximately 2.3%. That is about double the pace of loan growth in the third quarter and the highest total increase in bank lending in eight years.

The brisk pace of bank lending may cool this year after bank regulators issued an announcement during the fourth quarter that they planned to pay close attention to real estate lending activity among banks.

The FDIC warned in late December directing banks and savings and loans to “reinforce prudent risk-management practices” for their commercial real estate lending.

The FDIC regulators added that they would be paying close attention to bank CRE lending practices in their 2016 bank reviews. The last time the FDIC sent such a memo regarding real estate lending was in 2005.

Asked in Federal Reserve Bank January 2016 survey about their lending practices, senior loan officers reported tightening standards for multifamily loans, a moderate number reported tightening standards for construction and land development loans (CLD loans), and a small number reported tightening standards for loans secured by nonfarm nonresidential properties.

“The operating environment for banks remains challenging. Interest rates have been exceptionally low for an extended period, and we are seeing signs of growing interest rate risk and credit risk,” said FDIC Chairman Martin J. Gruenberg. “Recently, domestic and international market developments have led to heightened concerns about the U.S. economic outlook and prospects for the banking industry. Thus far, the performance of banks has not been impacted materially. However, the full effect of lower energy and other commodity prices remains to be seen. Banks must remain vigilant as they manage interest rate risk, credit risk, and evolving market conditions. These challenges will continue to be a focus of ongoing supervisory attention,” Gruenberg said.

Link to Article: CRE Lending

Mar

SF Tech Real Estate News: 95,000 SF Leased at former Twitter HQ

Source: San Francisco Business Times
By: Roland Li
Date Posted: March 3, 2016

Quantcast, a website analytics company, has leased three floors totaling about 95,000 square feet at 795 Folsom St., the former Twitter Inc. headquarters in South of Market, said two sources familiar with the property.

San Francisco-based Quantcast is replacing AT&T Inc. (NYSE: T), which vacated the space at the end of January, said a source. The swiftness of the deal is another sign that large chunks of office space are still being filled rapidly throughout the city, despite recent job cutbacks at prominent startups such as Zenefits and Surveymonkey. The asking rent in the building was in the mid-$70s, according to marketing materials.

Quantcast, founded in 2006, is also more established than many of the venture capital-fueled tech tenants that are growing rapidly. Quantcast was the 33rd-largest tech employer in the city with 385 employees as of January, up slightly from its 368 local employees in January 2015, according to Business Times research.

A Quantcast spokeswoman confirmed the lease and said the company will be relocating from its current headquarters about three blocks away at 201 Third St.

Steve Anderson and Bryan Ivie of JLL represented landlord ASB Real Estate Investments and asset manager Union Property Capital in the lease. JLL also represented the tenant. JLL declined to comment.

The six-story, 187,000-square-foot building at 795 Folsom St. is close to Yuerba Buena and Moscone Center. It was built in 1976 and renovated in 1999.

Twitter (NYSE: TWTR) moved into 795 Folsom St. in 2009, and then relocated to its current headquarters at 1355 Market St. in 2012. Current tenants at 795 Folsom St. include the real estate space provider Regus (LON: RGU) and gaming company Kabam Inc.

ASB bought 795 Folsom St. from Cornerstone Real Estate investors for $110 million in 2013.

Link to article: SF Tech Company Leases Three Floors at former Twitter HQ

Feb

Could Rail Yard Project in SOMA free up 25 acres for possible development?

Plan to Revap S.F. transit, remove stretch of I-280 debuts

Source: San Francisco Business Times
By: Riley McDermid
Date Posted: February 23, 2016

The first part of a study that looks at razing a 1.2-mile stretch of Interstate 280 in San Francisco in order to revamp infrastructure ahead of the city’s Transbay Transit Center and high-speed Caltrain arrivals will debut Tuesday.

It will be the first look the public will get at the “Rail Yard Alternatives and I-280 Boulevard Feasibility Study” (RAB), which will be unveiled tonight at the Potrero Hill Recreation Center. A multiagency effort, the plan hopes to modify the Fourth and King rail yard and weave SoMa into the Dogpatch, Mission Bay and Potrero Hill, while freeing up 25 acres for possible development.

“The study will review construction methods and rail alignments, including the possibility of moving the Caltrain station at Fourth and Townsend streets to Third Street, between AT&T Park and the planned Warriors arena,” the San Francisco Chronicle reports.

“It will also look at the potential of creating a loop track at the Transbay Transit Center, rather than a stub, where trains have to end and exit on the same track. A loop track would increase the station’s overall capacity.”

But the plan already has some officials questioning parts of its reach, including how rail travel would be incorporated into the city.

The feasibility of creating a tunnel under 16th Street so that trains could travel on top of 16th Street and Mission Bay Drive is also worrisome to Gillian Gillett, director of transportation policy for the city, who told the paper it might make a dangerous zone for cyclists and pedestrians.

“Those two streets will be depressed at great expense, resulting in an urban form that is invasive and hostile,” Gillett said. “We don’t want our streets to get trenched. We did that to Cesar Chavez Street, and it doesn’t create a good environment.”

Even more worrisome? Where the funding would come from, given the increasing costs of the Transbay Transit Center itself, which has been mired in funding shortages and delays. The project has already has taken on a loan from Goldman Sachs that will cost taxpayers $37 million in charges and fees.

That amount is part of a $171 million “bridge” loan that Goldman Sachs (NYSE: GS) is lending the city so that it can continue building the project without a pause due to financial issues.
In December, the Chronicle reported that the price for the first phase of the Transbay Transit Center may jump another $244 million to almost $2.3 billion, and has now added another $4 billion for a related train track project that will run from the three-block building to Fourth and King streets.

Those sorts of operational challenges are why the city needs to get any overarching plan that includes removing a portion of I-280 right the first time, said officials.

“One of the reasons we are in the soup we are in is that development and transportation improvements have not been happening at the same time,” Gillett told the paper. “If you are going to invest in this big seismic shift from diesel to electric, which we have got to do, you also have to look at all the stations. Are the tracks in the right place? Are the stations in the right place so that we can create real connections to other systems?”

link to article: Transit Revamp

Feb

Biotech Real Estate News: Cove at Oyster Point developers bowl-over employees with amenities

Bowling for biotech-or how real estate is changing to meet tight space, labor markets

Source: San Francisco Business Times:
By: Ron Leuty
Date Posted: February 4, 2016

Biotech real estate developers are rolling with the times, designing space for young, cash-flush companies desperate to hold on to talented employees who want more than a bench and a place to hang their lab coats.

Take HCP Inc., which is breaking ground on the second phase of its massive Cove at Oyster Point development in the sterile-and-scrubbed heart of the life sciences industry in South San Francisco. Along with two lab and office structures totaling 230,000 square feet, HCP’s next stage of the potential 884,000-square-foot project includes 20,000 square feet of retail, attempting to fill a desperate need among the thousands of biotech workers.

The first two-building phase, which will open in the third quarter, includes a marketplace-like food area on the ground floor as well as pool tables, table tennis and a two-lane bowling alley.

Yes, a bowling alley.

“It’s really taking an urban-type downtown environment and bringing it to a suburban market,” said HCP Executive Vice President Jon Bergschneider. “It’s large space for people to break out and team build.”

In the tech industry, such “amenity space” is commonplace in the tug-of-war to keep and attract fresh, young talent. Yet despite occasional events at individual companies — South San Francisco-based biotech granddaddy Genentech Inc. is well known for its bi-monthly “Ho-Hos” get-togethers — biotech has mostly maintained a buttoned-down focus on its benches and beakers.

Yet biotech executives and the developers who build space for their companies say that is changing. Employees can be in their labs at any time of the day or night, and the east side of Highway 101 in South San Francisco is largely a food and entertainment desert, so they often jump in their cars at break time. But the growing millennial workforce is different, they say, wanting services within walking distance.

BioMed Realty Trust, recently bought by Blackstone Group LP (NYSE: BX), is building out amenity space at a potential 595,000-square-foot campus in Foster City for Illumina Inc. (NASDAQ: ILMN). Across Oyster Point Boulevard from The Cove, BioMed has drawn up plans for similar amenities space at its Gateway of Pacific towers, which is entitled for 1 million square feet.

Companies are paying up for the space, too, in a tight real estate market. The first two tenants in the 250,000-square-foot first phase of The Cove — newly public cancer drug developer CytomX Therapeutics Inc. (NASDAQ: CTMX) and Denali Therapeutics Inc., which scored the largest startup round of venture capital for its focus on neurodegenerative diseases — will pay in the mid- to upper-$50 range after they move in the third quarter.

And for the next couple of years, The Cove and Phase 3 Real Estate Partners Inc., which last year bought the Centennial Towers project on the west side of Highway 101 and rebranded it Genesis-South San Francisco, are the main new, multiple-tenant life sciences spaces on the market.

As a result, said Rick Friday, a senior vice president at real estate brokerage CBRE Inc., the biotech real estate market remains tight. The brokerage is tracking about 1.6 million square feet of demand along the Peninsula, said Chris Jacobs, executive vice president of life sciences at CBRE.

“Ten years ago, a lot of companies could think two, three years in advance,” Friday said. “Now when companies decide they need space, they need it in 12 months or less.”

One of the first two buildings in The Cove remains unleased; the two-building second phase includes retail and a four-story parking garage — another sign of the times as developments have become denser with less surface parking.

Instead of parking, when the entire project is built out, The Cove will include a 5.5-acre open area with bocce ball, basketball and volleyball courts and a picnic area, said Scott Bohn, an HCP vice president.

The demand for The Cove’s first phase gave HCP confidence to start the second stage on time. What’s more, it helped them shape the footplates of the second phase, making them slightly smaller and more flexible for a wider variety of potential tenants, Jacobs said.

“The amenities center has really resonated as well,” Jacobs said. “Everybody we sit and talk to says, ‘It’s about time.'”

Link to article: Cove-Amenity Space

Jan

National CRE News: 2015 Was A Very Good Year

Source: CoStar
By: Randyl Drummer
Date Posted: January 28, 2016

For almost everyone involved in commercial real estate, 2015 was a very good year. The impressive recovery in commercial property values is apparent in the year-end release of the CoStar Commercial Repeat-Sale Indices (CCRSI), which delineate the broad price gains across property types and regions amidst record investment transaction volume in 2015.

Both the value-weighted and the equal-weighted segments of CCRSI’s U.S. Composite Index, which constitute the two broadest measures of aggregate commercial property pricing, continued to gain ground in December, the fourth quarter and for the year. Demand for core property assets was especially strong, with the value-weighted index rising 12.6% during 2015 to an all-time high of 19.1% above its pre-recession peak.

December transaction activity remained true to its seasonal pattern observed over the last several years, spiking in the final month of the year as investors raced to close transactions prior to year-end. The December composite pair volume of nearly $18 billion was the highest monthly total on record, helping lift total 2015 volume to $128.3 billion, a 26.2% increase from the previous peak reached in 2014.

While pricing in core U.S. markets set records in 2015, investors moving out on the risk spectrum in search of higher yields resulted in equally strong sales activity in non-core markets and property types, as reflected in the equal-weighted U.S. Composite index. Heavily influenced by lower-value properties typical of those in secondary and tertiary markets, the equal-weighted U.S. Composite Index rose 12.6% in 2015 and is now within 3.4% of its previous high water mark.

The investment-grade segment of the CCRSI equal-weighted index, capturing the performance of high-quality properties, moved to within 1% of its prior peak, while the general commercial index of smaller, lesser-quality assets remains 4.6% off its previous high water mark, according to CCRSI.

Quarterly indices for all six major property types, including the land and hospitality properties, posted double-digit gains in 2015, as did each of the four U.S. regional indices, marking the second straight year in which all the indices increased at a rate of 10% or above.

The Northeast Multifamily Index was the best-performing regional property segment of 2015, rising 15.4% to end the year 44% above its 2007 high. The West Multifamily and West Office Indices also posted exceptionally strong growth of 14.8% and 13.9%, respectively, nudging the overall West Regional Index to within 1% of its pre-recession peak. The South and Midwest indices advanced by 12% and 10%, respectively, though both remained 10% or more below their prior high levels.

The latest quarterly data further confirmed the steady pricing gains across all six property types. The CCRSI Prime Markets Indices increased more rapidly than the broader property-type indices in 2015, suggesting that core markets remained attractive even though investors showed an increased tolerance for risk in second- and third-tier markets as market fundamentals continue to improve.

By far, the U.S. Multifamily Index showed the strongest annual rate of increase, and it remains the only U.S. property index to have surpassed its pre-recession peak, ending the year 18.8% above its 2007 high.

In particular, the Prime Multifamily Metros Index, which passed its previous peak back in June 2013, skyrocketed in 2015 to 41.4% above 2007 levels. Multifamily fundamentals remained healthy in 2015 despite unprecedented levels of new construction, with continued price appreciation even as nationwide vacancy rates held below 4% in the fourth quarter of 2015.

Link to article: CRE Soars in 2015

Full Composite Price Indices Report for CRE: January 2016 CCRSI Release

Jan

San Francisco Tech News: Yelp HQ building possible sale for $1000 a foot

Source: San Francisco Business Times
By: Riley McDermid
Date Posted: January 27, 2016

Landmark tech HQ building could fetch as much as $1,000 a foot in sale

The San Francisco landmark PacBell building could fetch as much as $1,000 square feet when it is sold, reports The Registry, a record price that points to how high office rents currently are – and the value they are bringing to commercial real estate sales.

At 286,092 square feet of office space and 9,000 square feet of retail, that could add up to $295 million for the building located at 140 Montgomery, which currently boasts tenants such as Yelp and Lumosity.

The Registry’s report posits those high rents that could drive up the sale price of the building, which Wilson Meany and Stockbridge Capital Group bought from AT&T in 2007.

“One of the reasons for the high sales price is the current condition of the rents in the property. The office building has rents that are closer to current market rents than any other office asset in the city at this time,” The Registry reports. “Should 140 New Montgomery achieve the $1,000 per square foot sale price, it would place the asset very close to replacement cost, which some sources in San Francisco have pegged to be close to $1,000 per square foot.”

“Yelp had signed an eight-year lease in 2011 to occupy nine floors in the building with an annual rental rate that began at $54 a square foot and is planned to increase to $66.41 a foot by the eighth year,” The Registry reports.

“The landlord granted an initial $5.8 million, or $60 a foot, tenant-improvement allowance, according to records filed by Yelp with the U.S. Securities and Exchange Commission. Lumosity signed a lease in 2013 to occupy 36,000 square feet, or three floors, in the building.”

Eastdil Secured, the listing agent for the property, didn’t return a request for comment from the Business Times. Wilson Meany confirmed to The Registry that the building is up for sale.

Link to Business Times Article: Tech HQ Could Fetch $1000 a foot in sale

Link to The Registry Report: 140 Montgomery

Jan

San Francisco CRE News: SF Tops Country in Strongest Office Market

Source: Bisnow
By: Allison Nagel
Dated Posted: January 26, 2016

For the first time in history, San Francisco’s office rents have blown past Manhattan, recognizing the city and the Bay Area’s shift toward becoming the nation’s power center as more major companies establish a presence in the area. We chatted with Colliers regional executive managing director Alan Collenette about the brokerage’s new report.

Calling it San Francisco’s “Glittering Age,” Alan says the shift west with the growth of the tech industry marks an era, not a short-lived boom.

San Francisco is the nation’s healthiest office market, Alan says. He argues the world has shifted to a knowledge-based economy that thrives on innovation, and San Francisco is its epicenter as the home to major tech firms, such as Apple, Google, Facebook, Pinterest, Twitter and more, according to the report released by Colliers.

While there has been a lot of consternation about world events and economic woes, Alan tells us the worry may be blown out of proportion. On China in particular, he says exports only account for 13% of the US economy (and China makes up less than 8% of that, or just 1% of our overall economy). China is still growing strongly (more than twice the rate of US growth) with currency that hasn’t been devalued nearly as much as the currencies of other major US trading partners, he tells us. So China may import fewer products and services from the US, but will have a relatively limited direct hit on our near-term economic growth.

In addition, Alan tells us the US added an average of almost 300,000 jobs a month in Q4 and the yield curve (that harbinger of recessions) is still upward sloping (the spread between 10-year and two-year bonds is above its long-term average). Both are signs of a strong economy.

The brokerage firm’s year-end office market research study found:

-Office rents higher in San Francisco ($72.26/SF) than Manhattan ($71.26/SF);
-Vacancies of 7.2% in San Francisco vs. 9.6% in Manhattan;
-Annualized rents are up 11.8% in San Francisco;
-Sublease space at 0.7% of San Francisco’s 90M SF office market (compared with a high of 5.1% after the dot-com bust of 2002 and 1.6% during the recession in 2009);
-Absorption rates totaled nearly 180k SF in Q4 (total absorption for the year was 1,569,532 SF);
-Nearly 6.3M SF leased in San Francisco in 2015;
-36 office sales transactions totaling $3.7B closed during the year (compared with 50 sales for $5B in 2014, but still above the historical averages of $2B to $3B);
-Class-A prices rose to $675/SF, compared with $615 a year ago; and Class-B prices rose to $573/SF from $508 a year ago.

The report notes San Francisco’s 7.2% vacancy rate for Q4 included four office properties that are pre-leased but not occupied (the study only counts occupied buildings): 350 Mission St, 222 Second St, 333 Brannan St and 345 Brannan St. Those buildings are expected to be occupied in the first half of this year, dropping the vacancy back to 7% or lower.

Such growth, a strong economy, high leasing rates, pre-leasing and a robust pipeline of projects under construction mean that 2016 will remain strong for office development, the study notes. Overall, there is nearly 5M SF total under construction with 36% of it pre-leased, Alan says.

Read more at: SF Office Rents Top Manhattan