Insights

Is there any room for a Contrarian view?

Post by Bill Wilson – more at http://sfspaceadvocate.com/

“I was not predicting the future, I was trying to prevent it” – Ray Bradbury

Currently, there is “dancing in the streets”, figuratively, by the owners of San Francisco office space, after the announcement of the largest (714,000 sq.ft.) office lease in history by SalesForce. Still, we question whether the upward rush of rental rates can be continued. Recently it was announced that, on average, Class A rates rental rates have advanced by roughly 80% over the past three years. How many firms’ revenue has increased by a similar amount? The answer: very few, concentrated in the tech firms.

It used to be that firms who wanted to cut lease costs could go South of Market Street. Now, new buildings on Howard and Mission Streets, completed only in the last decade, are full at upper-market rents. The tech firms are displacing the Legal and Financial professions, which were the traditional residents North of Market, leaving them with few choices of inexpensive rental facilities. Moreover, the recent announcement that Microsoft is going to lease 50,000 sq.ft. of space in the B of A Building reinforces the message that this district, which was a home to the financial profession, is changing.

Alternately, the Legal and Financial fields have had to cut staff expenses or to “right-size” to get rid of the huge offices created over the last 40 years. This has taken many forms. For some examples: Wells Fargo has shifted some staff members to Salt Lake City, Portland and Seattle; Schwab is moving 1000 workers to Austin, Texas; Gordon & Rees, a mid-sized commercial litigation firm has chosen to send 20,000 sq.ft., largely consisting of staff workers, to Oakland.

Referring to the quote at the start of this letter, it is human nature to extrapolate trends. The fact that “the market” has performed so nicely, from the landlords point of view, has led to a myriad of construction cranes, promising over 4 million square feet of new space by 2017 at asking rates beginning at $65-75/sq.ft. to justify construction costs. Can you afford it?

If you have been at your current location for more than 5 years, the chances are that you aren’t reflecting the savings your competitors have been able to achieve. If you have a move to consider in your future (six months to two years), there are several defensive measures with which I can help you. Don’t go into the Market without a qualified representative!