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Category: san francisco commercial real estate (137)

Jun

National CRE News: Commercial Real Estate Prices are Booming says Goldman Sachs

Source: BisNow
By: Erik Dolan-Vecchio
Date Posted: June 7, 2016

Prices in the commercial real estate market are booming due to strong construction while the residential real estate market sluggishly comes back to life, says Goldman Sachs.

The investment banking behemoth recently completed a study highlighting the differences between the commercial and residential real estate markets, finding the drop-off in construction was less severe on the commercial side—it fell 1.6% while residential construction declined 2.8%. This has allowed prices to recover faster for commercial real estate, HousingWire reports. In fact, commercial real estate’s quickening pace has some regulators worried. Boston Fed president Eric Rosengren says keeping rates too low for too long may have encouraged excessive risk-taking, leading to unsustainable gains in commercial real estate.

Link to article: CRE Prices Climb

Read more at HousingWire: CRE Hits Historical Peak

May

National CRE News: Commercial Property Price Growth after Q1 2016

Growth in U.S. Property Prices Bounces Back After First Quarter Slowdown

Source: CoStar News
By: Costar News Staff
Date Posted: May 26, 2016

Commercial property price growth picked up in April after a slower than expected first quarter, according to the latest CoStar Commercial Repeat sale Index (CCRSI) released this week

The two major CCRSI indices rebounded during the month as investors returned to the market and resumed sales activity after a pull-back at the beginning of the year. The value-weighted U.S. Composite Index increased 0.9% and the equal-weighted U.S. Composite Index grew 0.6% in April 2016.

Total property sales remains muted compared with last year, reflecting the slow start. Composite pair volume of $33.4 billion year-to-date through April 2016 was down 9.2% from the same period last year.

The U.S. property sales reflected the general economic slowdown seen in the first quarter as financial market volatility over global political concerns took a toll on the general economy at large. Due to the slow start to the year, CoStar analysts do not expect property price growth to match the record pace of the last two years.

The investment-grade segment of the market was hit particularly hard. Transaction volume was down 11.2% in the investment-grade segment and 4.1% in the general commercial segment in the first four months of 2016 from the same period in 2015.

However, liquidity measures indicate continued healthy investor sentiment for commercial property, and the positive outlook for CRE fundamentals suggests the asset class should continue to attract investor interest.

The average time on the market for for-sale properties dropped 19.7% in the 12-month period ended in April 2016 and the sale-price-to-asking-price ratio narrowed by 2.9 percentage points in the 12-month period ended in April 2016 to 94.3%, the highest this ratio has been since August 2006 and further indication of positive investor sentiment.

link to article: Growth in US Property Prices

May

San Francisco Business Times: 10 Mega-Projects that will change San Francisco

Source: San Francisco Business Times
By: Riley McDermid and Matt Petty
Dated Posted: May 5, 2016

These major developments have earned their “mega” moniker. They include millions of square feet of residential, office and retail development, some in sprawling new neighborhoods and others in soaring towers.

Click here for the Slideshow: SF Mega-Projects

#6 Potrero Power Plant

The developers bringing big changes to the city include Forest City, Oceanwide Holding’s Tohigh Investments, Kilroy Realty Corp. (NYSE: KRC), Lennar Urban and others.

The San Francisco Giants are even getting in on the action, fielding a massive project across the streets from AT&T Park.

Link to full article: SF Business Times-SF Mega Projects

May

San Francisco Business Times: 7 Mega-projects that will shape the Peninsula

Date Posted: May 9, 2016

The Peninsula has seen few megaprojects in the past few decades, but seven ambitious developments could be economic engines for years to come.

Click here to view the slideshow: Peninsula Mega-Projects

Perhaps the biggest player on the Peninsula remains biotech, with millions of square feet planned for that sector in the area, as it continues to be a world-class hub of innovation and research.

#7 The Cove at Oyster Point

These megaprojects will bring much-needed R&D space to the Peninsula, notably in South San Francisco. The Cove at Oyster Point has 884,000 square feet of biotech lab space planned by developer HCP while BioMed Realty (NYSE: BMR) and The Blackstone Group (NYSE: BX) are marketing 1.3 million square feet being developed at Gateway of Pacific. SKS Partners and Shorenstein Properties have lined up 2.25 million square feet of office and lab approvals.

You can read more about these R&D projects, as well as office, residential and retail developments, in the slideshow above.

link to article: SF Business Times-Peninsula Mega-Projects

May

National CRE News: How does Commercial Real Estate Fit into the recovery picture?

Source: Institutional Investor
By: Andrew Nelson
Date Posted: May 5, 2016

It’s time to retire the term “recovery” as it relates to this economic cycle. On most counts, the U.S. economy is stronger nowt hat it was in 2008. Although economic growth since the late 2000s recession has been moderate and fitful, cumulative growth has been substantial. It’s no wonder consumer confidence is now above its long-term average.

How does Commercial Real Estate fit into this picture?

To find out/read more, click here: Economic Recovery & CRE

May

San Francisco Industrial Market Report – Q1 2016

Vacancy Decreases to 2.7%; Rents Up 3.5%
Net absorption positive 359,380 SF in first quarter

click here to download the Q1 Report: Calco Q1 Market Report 2016

Apr

National CRE News: Office Market Sending Mixed Signals

Most Markets Continue to Enjoy Steady Growth in Demand and Rental Rates, Although Rate of Increases Beginning to Moderate

Source: CoStar News
By: Randyl Drummer
Date Posted: April 21, 2016

The U.S. office market appears to be at the stage in the real estate cycle that analysts often describe as a turning point or tipping point. Overall, the U.S. office market continued to post solid fundamentals during the first quarter, including very strong net absorption, while traces of a slowdown in demand appeared in some markets.

“We are seeing mixed signals in the marketplace, although our expectation is the office market will continue to do fairly well for the next few years,” said CoStar Director of Office Research Walter Page, who presented the First Quarter 2016 State of the U.S. Office Market Review and Forecast findings to CoStar subscribers this week. “The biggest mixed signals are really related to net absorption and sales volumes.”

Total net absorption of 11 million square feet of office space in the first quarter was about the same as first-quarter 2015, a leveling off from the upward trend of recent quarters. On the other hand, net space taken by occupiers over the past four quarters exceeds the similar trailing period ending in 2015’s first quarter by nearly 11% at 98 million square feet, noted Page, who presented the findings this week, along with Hans Nordby, managing director of CoStar Portfolio Strategy, and Aaron Jodka, senior manager, Market Analytics.

“All in all, it’s still a very good picture, but the market is clearly not growing as rapidly as before,” added Page. “Our expectation is that going forward, we’re going to see a continuing decline in net absorption, principally because we’re headed for that demographic cliff of retiring baby boomers.”

Office-using employment, a key metric for office demand, continued to outperform the broader job market, especially in the nation’s tech markets, as well as South Florida, Dallas and other pockets of growth and recovery from the housing bust following the Great Recession. Conditions for office job growth should remain strong for the next two years before gradually slowing through 2020, Nordby said.

Despite signs of slowing, solid absorption and occupancy levels continue to be enabled by the moderate pace of new office construction and deliveries in most markets. The 127 million square feet of office space under construction in the first quarter was up only slightly from the same period last year.

Link to article: Office Market Mixed Signals

Apr

Tech CRE News: Bloomberg reports startups leaving Silicon Valley for more Hospitable Homes

Source: Bloomberg
By: Rani Molla, Shira Ovide
Date Posted: April 18, 2016

The Bay Area has long been the center of the technology world, and it remains the undisputed king of startups. But lower wattage tech hubs are popping up as hospitable homes for the next Facebook or Google.

The bloom of more silicon cities has spread tech jobs into some unlikely places such as Florida and Utah, but it has also brought some of the attendant annoyances familiar to Northern California, including rising costs for office space.

U.S. venture capital firms — the financiers seeking to find and fund the next Google or Facebook — wrote $12.1 billion worth of checks for U.S. startups in the first quarter of 2016, according to a PwC and NVCA MoneyTree report based on data from Thomson Reuters. About 40 percent of that sum went to young companies in the Bay Area, a share of startup financing that has increased from a decade ago.

But some of the biggest deals in the first quarter of 2016 went to companies outside of the Bay Area. Magic Leap — a Dania, Fla., startup that is working on technology to mix virtual images with the real world — collected $794 million from investors. Domo, a business software startup based in American Fork, Utah, added $131 million to its coffers so far this year, and it is laying the groundwork for an initial public offering.

The spread of startup money outside the Bay Area has helped those cities take advantage of growth in high-tech jobs, which has far outpaced that of office jobs overall.

And while Silicon Valley continues to lead the pack, Phoenix, Austin, Nashville, Indianapolis, Charlotte and Salt Lake City all made the top 10 list for growth in high-tech jobs, according to the latest available citywide data from real estate services firm CBRE, which analyzed U.S. Bureau of Labor Statistics data.

The trend of startup money and jobs flowing beyond the Bay Area is no accident. Startup founders say pay for employees in other tech hubs such as Seattle, Salt Lake City and Birmingham, Ala., tends to be lower than it is in the Bay Area. Startup workers outside Silicon Valley also tend to job-hop less often and demand fewer perks like free burritos and hammocks in the office.

Investors say they like those non-Bay Area startups, too, because valuations tend to be a bit lower, which means each dollar of investment buys them a larger piece of a startup. For example, PayPal co-founder and venture capitalist Peter Thiel recently mentioned he was hunting for investments outside of Silicon Valley.

Becoming a tech hub has downsides, too. The emergence of spots like Silicon Slopes (Salt Lake City), Silicon Beach (in the Los Angeles area) and Silicon Mountain (Denver) has also coincided with big jumps in office rental costs in some spots.

Link to article: Tech Moving from Silicon Valley

Apr

San Francisco CRE News: 2016 First Quarter Office Statistics

San Francisco’s Office Vacancy Decreases to 6.8%

The San Francisco Office market ended the first quarter 2016 with a vacancy rate of 6.8%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 887,196 square feet in the first quarter. Vacant sublease space increased in the quarter, ending the quarter at 1,412,643 square feet. Rental rates ended the first quarter at $52.43, an increase over the previous quarter. A total of two buildings delivered to the market in the quarter totaling 480,000 square feet, with 5,352,288 square feet still under construction at the end of the quarter.

Absorption
Net absorption for the overall San Francisco office market was positive 887,196 square feet in the first quarter 2016. That compares to positive 680,988 square feet in the fourth quarter
2015, negative (297,950) square feet in the third quarter 2015, and positive 1,332,620 square feet in the second quarter 2015.

The Class-A office market recorded net absorption of positive 669,332 square feet in the first quarter 2016, compared to positive 689,681 square feet in the fourth quarter 2015, negative (25,939) in the third quarter 2015, and positive 825,531 in the second quarter 2015.

The Class-B office market recorded net absorption of positive 248,697 square feet in the first quarter 2016, com- pared to negative (39,232) square feet in the fourth quarter
2015, negative (216,768) in the third quarter 2015, and positive 555,278 in the second quarter 2015.

The Class-C office market recorded net absorption of negative (30,833) square feet in the first quarter 2016 com- pared to positive 30,539 square feet in the fourth quarter
2015, negative (55,243) in the third quarter 2015, and negative (48,189) in the second quarter 2015.

Net absorption for San Francisco’s central business district was positive 660,981 square feet in the first quarter 2016. That compares to positive 163,176 square feet in the fourth quarter
2015, negative (267,529) in the third quarter 2015, and positive 387,476 in the second quarter 2015.

Net absorption for the suburban markets was positive 226,215 square feet in the first quarter 2016. That compares to positive 517,812 square feet in fourth quarter 2015, negative (30,421) in the third quarter 2015, and positive 945,144 in the second quarter 2015.

Vacancy
The office vacancy rate in the San Francisco market area decreased to 6.8% at the end of the first quarter 2016. The vacancy rate was 7.0% at the end of the fourth quarter 2015,
6.6% at the end of the third quarter 2015, and 6.4% at the end of the second quarter 2015.

Class-A projects reported a vacancy rate of 7.7% at the end of the first quarter 2016, 8.0% at the end of the fourth quarter 2015, remained the same at 7.4% at the end of the third quarter 2015 compared to the previous quarter.

Class-B projects reported a vacancy rate of 6.7% at the end of the first quarter 2016, 7.1% at the end of the fourth quarter 2015, 6.7% at the end of the third quarter 2015, and
6.3% at the end of the second quarter 2015.

Class-C projects reported a vacancy rate of 3.8% at the end of the first quarter 2016, 3.7% at the end of fourth quarter 2015, 3.9% at the end of the third quarter 2015, and 3.6% at the end of the second quarter 2015.

The overall vacancy rate in San Francisco’s central business district at the end of the first quarter 2016 decreased to 6.3%. The vacancy rate was 7.0% at the end of the fourth quarter 2015, 6.0% at the end of the third quarter 2015, and 5.8% at the end of the second quarter 2015.

The vacancy rate in the suburban markets increased to 7.5% in the first quarter 2016. The vacancy rate was 7.1% at the end of the fourth quarter 2015, 7.5% at the end of the third quarter 2015, and 7.4% at the end of the second quarter 2015.

Sublease Vacancy
The amount of vacant sublease space in the San Francisco market increased to 1,412,643 square feet by the end of the first quarter 2016, from 1,352,132 square feet at the end of the fourth quarter 2015. There was 1,275,923 square feet vacant at the end of the third quarter 2015 and 1,102,001 square feet at the end of the second quarter 2015.

San Francisco’s Class-A projects reported vacant sublease space of 998,469 square feet at the end of first quarter 2016, up from the 967,996 square feet reported at the end of the fourth quarter 2015. There were 857,982 square feet of sub- lease space vacant at the end of the third quarter 2015, and 748,203 square feet at the end of the second quarter 2015.

Class-B projects reported vacant sublease space of 333,325 square feet at the end of the first quarter 2016, up from the 329,958 square feet reported at the end of the fourth quarter 2015. At the end of the third quarter 2015 there were 342,020 square feet, and at the end of the second quarter 2015 there were 298,324 square feet vacant.

Class-C projects reported increased vacant sublease space from the fourth quarter 2015 to the first quarter 2016. Sublease vacancy went from 54,178 square feet to 80,849 square feet during that time. There was 75,921 square feet at the end of the third quarter 2015, and 55,474 square feet at the end of the second quarter 2015.

Sublease vacancy in San Francisco’s central business district stood at 673,271 square feet at the end of the first quarter 2016. It was 595,812 square feet at the end of the fourth quar- ter 2015, 543,796 square feet at the end of the third quarter 2015, and 491,777 square feet at the end of the second quarter 2015.

Sublease vacancy in the suburban markets ended the first quarter 2016 at 739,372 square feet. At the end of the fourth quarter 2015 sublease vacancy was 756,320 square feet, was 732,127 square feet at the end of the third quarter 2015, and was 610,224 square feet at the end of the second quarter
2015.

Rental Rates
The average quoted asking rental rate for available office space, all classes, was $52.43 per square foot per year at the end of the first quarter 2016 in the San Francisco market area. This represented a 1.1% increase in quoted rental rates from the end of the fourth quarter 2015, when rents were reported at
$51.84 per square foot.

The average quoted rate within the Class-A sector was $54.11 at the end of the first quarter 2016, while Class-B rates stood at $51.77, and Class-C rates at $46.73. At the end of the fourth quarter 2015, Class-A rates were $53.77 per square foot, Class-B rates were $50.94, and Class-C rates were $45.57.

The average quoted asking rental rate in San Francisco’s CBD was $57.99 at the end of the first quarter 2016, and $50.36 in the suburban markets. In the fourth quarter 2015, quoted rates were $58.19 in the CBD and $49.47 in the suburbs.

Inventory
Total office inventory in the San Francisco market area amounted to 165,448,464 square feet in 3,843 buildings as of the end of the first quarter 2016. The Class-A office sector consisted of 77,319,980 square feet in 304 projects. There were 1,437 Class-B buildings totaling 64,146,043 square feet, and the Class-C sector consisted of 23,982,441 square feet in 2,102 buildings. Within the Office market there were 209 owner- occupied buildings accounting for 18,858,040 square feet of office space.

Sales Activity
Tallying office building sales of 15,000 square feet or larger, San Francisco office sales figures fell during the fourth quarter 2015 in terms of dollar volume compared to the third quarter of 2015.

In the fourth quarter, 14 office transactions closed with a total volume of $1,043,890,500. The 14 buildings totaled 1,634,104 square feet and the average price per square foot equated to $638.82 per square foot. That compares to 13 transactions totaling $1,955,263,000 in the third quarter 2015. The total square footage in the third quarter was 2,904,410 square feet for an average price per square foot of $673.20.

Total office building sales activity in 2015 was down com- pared to 2014. In the twelve months of 2015, the market saw 48 office sales transactions with a total volume of $4,814,873,500. The price per square foot averaged $651.62. In the same twelve months of 2014, the market posted 76 transactions with a total volume of $6,456,094,000. The price per square foot averaged
$544.50.

Cap rates have been lower in 2015, averaging 4.76% compared to the same period in 2014 when they averaged 4.88%. One of the largest transactions that occurred within the last four quarters in the San Francisco market is the sale of 333 Bush St in San Francisco. This 546,182-square-foot office building sold for $378,500,000, or $692.99 per square foot. The property sold on 12/24/2015, at a 3.70% cap rate.

source: CoStar 1st Quarter 2016 San Francisco Office Market Report

Apr

National CRE News: Investors who bought high-vacancy office properties see big returns

Source: CoStar News
By: Mark Heschmeyer
Dated Posted: April 11, 2016

Investing in high-vacancy office properties has always involved a lot of risk. That is no more true than in today’s market as more companies adopt more-efficient floorplans that allocate fewer square feet per employee.

However, recent research by Andrew Rybczynski and Suzanne Mulvee of CoStar Portfolio Strategy found that investors who did brave the odds and acquired high-vacancy office properties in this economic-recovery cycle have enjoyed superb returns. In general, value gains from acquiring low-occupancy office property, leasing it up, and selling have averaged 33% during this cycle versus just 20% in average value gains for the same strategy during the last one.

The research also found that office property in central business districts (CBDs) generated slightly more of these gains than suburban assets, as office users have shown a stronger preference for urban over suburban locations up to this point in the cycle.

The CoStar Portfolio Strategy team examined 44 million square feet of office buildings that sold after successfully executing an occupancy turnaround over the past 12 years. These turnaround buildings were defined as those that were initially acquired with occupancies below 70% and then resold one to four years following the initial sale with an occupancy improvement of at least 25 percentage points. The office buildings had to be 10,000 square feet or larger with an initial sale price of $5 million or more.

“The decline in cap rates has certainly provided more of a tailwind for office property values this cycle than was the case for the last one,” Rybczynski noted. “However, the outsized value gains realized more likely reflect the greater volatility in rent during this cycle, especially in urban areas. We observed that non-CBD submarkets in recent years have narrowed the gap in delivering appreciation returns, which suggests a better risk discount for non-CBD properties than previously available.”

Despite strong demand for core assets and the better price appreciation, the sales volume of successful turnarounds of office buildings with high vacancy has not reached the levels achieved at the peak of the last cycle (see Chart 2 above.) Although it appears more investors are targeting value-add properties today, Mulvee pointed out that more of these opportunistic investors appear to be holding their properties longer.

“While sales of office properties with sub-70% occupancies has been 33% higher over the past three years than in the comparable period of the last cycle, fewer of these assets have re-traded. It seems that these value-add investors are holding their positions longer, looking to increase occupancy and rent to maximize operating cash flows before eventually selling to achieve their return targets,” Mulvee said.

However, the window for successfully executing such a strategy may be closing. According to the CoStar Portfolio Strategy analysts, rent gains are expected slow this year for office space as new supply ramps up. As that happens, any additional reward for holding onto assets may not outweigh the heightened risk posed by new supply.

Link to article: Value Gains