Category: San Francisco CRE (33)

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.

CRE_Price Boom_For WEB

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

Source: San Francisco Business Times
By: Roland Li
Date Posted: May 2, 2016

Boston Properties, San Francisco’s largest office landlord, thinks the country’s hottest office market is cooling.

In an earnings call last week, Doug Linde, president of Boston Properties (NYSE: BXP), said that San Francisco’s office market is seeing fewer space needs from larger tenants, which could indicate a slowdown, while Silicon Valley’s activity is growing.

“I think the big difference between the market then — i.e. in 2014 and 2015 — and today is really the lack of large growth requirements, and by that I mean big tenants over 300,000 square feet,” said Linde, according to a transcript.

Boston Properties, which had 5.8 million square feet of office space in the Bay Area market at 93.8 percent occupancy as of December 2015, is working on some of the largest office projects in the city. Along with minority partner Hines, Boston is building Salesforce Tower, which will be the tallest tower in the city when it opens next spring. Still, Linde cited some pullback.

“San Francisco has slowed from the pace that it was going at in 2014 and 2015. Silicon Valley continues to be very active and actually has been expanding,” he said. There’s a dearth of huge tenants such as, Stripe and LinkedIn, who all signed huge leases over the past three years, he added.

“So technology is still a vibrant part of the market, it’s still expanding, it’s not quite in the same manner that it was in 2014 and 2015,” said Linde.

Linde’s perspective mirrors the consensus of many real estate brokerages, who have projected a slowdown this year after record leasing activity in the past few years. However, the majority of first quarter reports anticipates that San Francisco will remain one of the country’s most expensive markets. Asking rents are over $70 per square foot, and vacancy is hovering around 5 percent for Class A space.

But some real estate professionals fear that a full downturn could occur. They see a tech bubble, citing startups with unsustainable business models that are committing to huge blocks of space that they likely won’t fill.

Boston Properties, though, says its developments are filling up. Salesforce Tower is now 59 percent occupied, said Linde on the earnings call, and the landlord is in talks with both single-floor and multi-floor tenants. He said that by the end of the second quarter, the company hopes to complete another 100,000 square feet in leases.

In the past quarter, Bain & Co. and Vy Capital have signed leases at Salesforce Tower, underscoring continued demand from non-tech tenants. CBRE Group Inc., the tower’s own broker, is also close to a lease. Boston Properties also completed 535 Mission St. in 2014 and is seeking approvals for a 1.1 million-square-foot project at Fourth and Harrison streets in the Central SoMa district.

However, Boston Properties has also shown caution. Michael Tymoff, Boston Properties’ senior project manager, development, told the Business Times in February that the company has declined to pursue projects because expected returns didn’t match land or construction pricing.

“We are very disciplined, both in our timing and the selectivity of sites,” he said. “While we evaluate every project on its own merits, we currently target 7 percent returns or better for our ground-up office developments.” Tymoff didn’t immediately respond to requests for additional comment on Monday.

Brokerage data also indicates that Linde’s comments on tenant demand may be inaccurate. JLL is tracking over 9.3 million square feet of current demand in San Francisco, including three tenants with requirements over 500,000 square feet.

Brokers have said that Google Inc. (NASDAQ: GOOG), as well as health care and financial services firms are seeking large blocks of space over 300,000 square feet. Inc. (NASDAQ:AMZN)’s Twitch and cloud-computing company Okta, and co-working firm WeWork are also looking for spaces larger than 100,000 square feet, according to multiple sources.

The slowdown this year is in part because the last three years have seen record activity, and the pipeline of new projects, including Salesforce Tower, have rents as high as the triple digits.
“A lot of the growth has already occurred,” said Amber Schiada, director of research for Northern California at brokerage JLL. “If you’re a big company like that, you’re not eager to take on $80 rents or $100 rents.”

There’s also more scrutiny for rising costs. “VCs are really pulling back on expansion on their younger companies, trying to minimize burn rates,” said Schiada, referring to venture capitalists.

New towers in the Transbay district including 181 Fremont St. and Park Tower have signed no tenants, but those buildings also won’t be delivered until late next year or later, said Schiada. Tenants are showing a preference for pre-built space that is ready for occupancy, she said.

Another big public landlord, Kilroy Realty Corp. ( NYSE: KRC), stated last week during its earnings call that San Francisco remained strong, and sublease space was being filled up.

Mike Sanford, Kilroy’s executive vice president of Northern California, said that the company was still seeing strong demand. “Down on the street there’s just more activity, more tenants coming to the buildings, looking for space and then boots on the ground,” said Sanford.

Link to article: Office Slowdown

Source: San Francisco Business Times
By: Roland Li
Date Posted: January 14, 2016

Back in October, the audio giant Dolby Laboratories Inc. completed its move to 1275 Market St., heralding another tech arrival in San Francisco’s changing Mid-Market neighborhood.

With the relocation, Dolby (NYSE:DLB) vacated a 150,000-square-foot office at 999 Brannan St. in South of Market, and the building is close to being filled again. Airbnb Inc. is in talks to lease at least 100,000 square feet at 999 Brannan St., said three sources familiar with the property.

The pending deal is another affirmation that even as companies put up large blocks of sublease space on the market, suggesting a slowdown, other growing businesses are quickly snapping them up. Strong market activity, particularly from tech companies, has propelled San Francisco to become the most expensive office market in the country.

999 Brannan St. appears to be a natural expansion for Airbnb. The property is about a block from Airbnb’s current headquarters at 888 Brannan St., separated by Highway 80. The four-story property has a glass facade that wraps around its curving triangular structure, along with rooftop parking and a penthouse conference room, designed by Leddy Maytum Stacy Architects. The asking rent in the building wasn’t clear, but South of Market’s average office rent has surpassed $70 per square foot.


Dolby bought 999 Brannan St. from Shako Real Estate Management Inc. for $18.2 million in 1998, according to property records, but with renovations and a new tenant, the building would be worth exponentially more.,p>
Airbnb’s current location at 888 Brannan St. is evidence of the sharp jump in building values in the area. Last year, pension fund TIAA-CREF bought 888 Brannan St for $312 million from Beacon Capital Partners, a 69 percent profit on the $185 million that Beacon paid for the building in 2014. Airbnb leases 225,000 square feet, or more than half of the 400,000-square-foot building.

Airbnb, valued at $25.5 billion in its latest fundraising round in November, is the world’s third-most valuable private startup on paper, behind Uber Technologies Inc. and China’s Xiaomi Inc. The short-term rentals company also lobbied aggressively and spent $8.5 million to defeat Prop. F, a San Francisco ballot measure that would have added restrictions to its business. The company had around 500 San Francisco employees last year, according to Business Times research.

Jack Jackson of Tailwind Commercial, the leasing broker for 999 Brannan St., didn’t respond to requests for comment. A spokesman for Airbnb declined to comment.

Link to article: Airbnb Eyes Former Dolby Space