by Bill Wilson, Senior Broker, TRI Commercial
“There must be more to life than having everything” – Maurice Sendak
Positive Absorption (net gain) this year for the San Francisco market is 2.2 million square feet versus 1.6 million square feet a year ago. That translates into the vacancy factor in the Central Business District going from 5.9% last quarter to 5.3% currently; which means landlords in Class A space can ask for rents nearly double the $35/square feet that was normal five years ago. Have you doubled your revenue?
Gone are the days when tenants could go South of Market to receive a discount of 30-40% compared to asking rates North of Market. All of the action is South of Market. The only new construction North of Market is happening at 350 Bush Street (in back of the Russ Building) where Lincoln Properties is constructing 435,000 sq.ft. to be delivered shortly after 2015. Roughly 5 million square feet is in the pipeline for construction South of Market but the space is already 40% leased!
Solutions to the problem of rising rates vary from reducing suite size and reflecting smaller staff needs to being able to shrink necessary space by 10-20%. Some tenants are downgrading to Class B and looking forward to being able to open the windows to let in natural air and saving $5-10/square feet. In San Francisco, areas with relatively inexpensive rents are the Van Ness Corridor, North Waterfront and Union Square submarkets. Then there’s the ultimate solution: To move out entirely, or in part, from San Francisco. Oakland is the recipient of several non-profit agencies due to this trend. In April, Gordon & Reis moved about one-quarter of their headquarters operation, consisting largely of support staff, to 1111 Broadway across the Bay. There are 460,000 commuters who spend valuable time on BART daily to get to S.F. from the East Bay.
By the time you get this letter, the Giants will hopefully be on their way to another Championship, the stock market will have scared everyone again with its volatility, Europe will be closer to a recession threat, Ebola will be a household name and San Francisco rents will still remain high. Take a minute to call and tell me your real estate situation. We can find a solution!
Visit Bill Wilson’s website – http://sfspaceadvocate.com/main/
Jean Ko, TRI Commercial/CORFAC International
POSTED ON NOVEMBER 11, 2014 BY NELLIE DAY
San Francisco is a veritable boom town that has already surpassed the market roar of 1999. It can even conceivably be compared to 1849, when gold was discovered 100 miles east. In fact, this year is so utterly off the charts that most of us in the commercial real estate industry have never seen an upcycle like this in our entire careers.
Witness the fact that through the first three quarters of 2014, San Francisco’s gross office absorption reached 7.6 million square feet. Net absorption in this same period was 2.4 million square feet. This compares with 1999, the record year, when gross absorption was 7.4 million square feet – and that was for the entire year! It is quite possible we’ll hit 10 million square feet of gross absorption by the time 2014 closes out. Incidentally, net absorption for 1999 was “only” 526,000 square feet.
Not surprisingly, three out of the four biggest leases in the third quarter were completed by tech companies. The tech frenzy in San Francisco has been well documented. Most of the Silicon Valley companies want, or need, to have a presence in the city. The trend is employment-driven. Young techies don’t want to commute to the suburbs, and there are plenty of jobs.
San Francisco added 1.11 million new jobs between August 2007 and August 2014 – a 10.5 percent increase in the employmented base here, according to Chris Thornberg, founding principal of Beacon Economics. The city’s employment gains are greater than all other California cities. They also rank among the highest, if not the highest, in the U.S. during the recession’s recovery.
This makes now an exciting time to be in San Francisco, but it comes with the risk that our local and regional economy is overly dependent on sustainable growth by technology companies.
For a little perspective, our CORFAC International colleagues from London recently paid TRI a visit. Farebrother/CORFAC International told us that while tech is also hot in the U.K.’s capital, it accounts for a reasonably healthy 15 percent to 20 percent of leasing activity in London. San Francisco’s leasing activity is 65 percent tech-driven or more.
When rents used to get out of hand during upcycles, companies would typically flee to Oakland and other points in the East Bay. Not tech companies in this cycle. We’ve created a new submarket to absorb some of the growth: Mid-Market, where Twitter is headquartered.
Composed of some 3.5 million square feet, no one would have located their businesses there five or six years ago. Nowadays, if space is tight in the historic tech center of SOMA (South of Market), tech companies will take space in traditional office properties in the Financial Center. They will simply make their interiors as creative as possible by gutting drop ceilings, increasing ceiling heights and exposing concrete and HVAC ducts.
By Jean Ko, Senior Vice President of TRI Commercial/CORFAC International in San Francisco. This article originally appeared in the November 2014 edition of Western Real Estate Business magazine.
– See more at: http://rebusinessonline.com/for-better-or-worse-tech-dominates-norcals-office-sector/#sthash.N0JyP5QG.dpuf
Recently TRI Commercial San Francisco received a first-hand look at the construction progress of the Transbay Transit Center Project (TTC).
The tour, provided by the Transbay Joint Powers Authority and Turner Construction management, began with a video presentation providing an overview of the project. Afterward, the construction management team provided a guided tour of the construction site to 15 TRI agents and their respective clients.”
‘Kudos to Bryan and Bruce Wirt, and of course John Gallagher and his team, for their recent and highly visible successes in the Roseville/Sacramento CRE marketplace. It’s a clear indication of the significant momentum TRI Commercial is demonstrating in a highly competitive environment.’ – Tom Martindale, President
Bryan Wirt Closes an 82,688 sf shopping center in Sacramento
TRI Team gets 500,000 sf management assignment
“Rocklin and Roseville have benefitted more than any other Sacramento submarket this year”, says Wirt
SACRAMENTO—TRI Commercial/CORFAC International president Tom Martindale, SIOR, recently revealed that John Gallagher, CCIM, CPM and managing director with the firm, led the TRI team that won the 531,273-square-foot commercial property management assignment in the Sacramento suburban community of Rancho Cordova that includes 10 separate properties under one ownership group.
The property owner is Karlin Cap Center LLC and the building addresses for the offices are: 11000, 11010, 11020, 11030, 11040, 11050, 11060, 11070, 11080, 11090 on White Rock Rd., Rancho Cordova, CA.
The buildings were constructed in 1984 and 1985 and the campuses are known as Cap Center II and III. Located in the Highway 50 Corridor of the state capital area, it is the largest submarket in the metro area and comprised of approximately 14 million square feet of office inventory. The submarket is predominantly occupied by large-space office users which include back office operations for several national and regional companies.
“We’re naturally proud to have won the management assignment in a competitive environment and look forward to supporting the occupants of the building as well as the owners to achieve maximum efficiency of building operations and on-going tenant satisfaction with the space they respectively occupy,” Gallagher says.
In fact, Bruce Wirt, SIOR and SVP in TRI Commercial/CORFAC International’s Roseville office, exclusively tells GlobeSt.com that Rocklin and Roseville have benefitted more than any other Sacramento submarket this year.
“We’ve had quite a bit of positive absorption in Rocklin and Roseville the first half of this year for several reasons,” Wirt says. “With the recovering economy and rental rates finally increasing, we had some classic ‘flight-to-quality’ leasing activity. Plus, many of the decision makers live in these communities and they prefer shorter work commutes,” he says.
While the Rancho Cordova/Highway 50 market hasn’t been the busiest submarket in the Sacramento Metro market this year, the Rancho submarket does offer 25,000-to-50,000-square-foot floor plates to users at competitive prices, compared with the tonier neighborhoods in Roseville and Rocklin, says Gallagher.
A few of the bigger deals in Rocklin this year, according to Wirt, are: PG&E expanding into 38,000 square feet (consolidated from several locations); Liberty Mutual taking roughtly 50,000 square feet, relocating from the Point West submarket; and Rocklin Academy leasing about 40,000 square feet (a brand new charter school); they went into a building that had been vacant since 2007.
Some of the recent Roseville deals this year he mentioned include: Rabobank expanding into 83,000 square feet, from about 40,000 square feet; Solar City leasing 55,000 square feet; and SureWest in the process of selling its 200,000-square-foot campus to Bridgeway Church.
Merlone Geier Makes Shopping Center Play
“This is one of the most prominent grocery-anchored retail centers on one of the busiest intersections in Sacramento… it is definitely a great piece of real estate,” Wirt tells GlobeSt.com.
SACRAMENTO—The University Village Shopping Center, located at the southeast intersection of Fair Oaks Blvd. and Howe Avenue in Sacramento has changed hands. The seller wasHowe and University LLC, a local investor that acquired the property in 2002.
Merlone Geier Partners, a San Francisco-based investment company, purchased University Village Shopping Center for an undisclosed price, which is reportedly said to be around $20 million.
TRI Commercial/CORFAC International’s Bryan Wirt was the only broker involved in the deal. The 82,688-square-foot shopping center is approximately 97% occupied with only one, 1,700-square-foot space available for lease.
“This is one of the most prominent grocery-anchored retail centers on one of the busiest intersections in Sacramento… it is definitely a great piece of real estate,” Wirt, who specializes in retail real estate investment sales, tells GlobeSt.com.
Wirt adds that it was a “value-add” investment for Merlone Geier Partners and that portions of the property could be redeveloped to add more retail space.
The center, located at 27 University Ave., is anchored by Safeway in approximately 27,000 square feet. Other tenants include CVS, Citibank, Starbucks, AT&T and Bandera Restaurant.
Merlone Geier Partners is a private real estate investment company focused on the acquisition, development and redevelopment of retail and retail-driven mixed-use properties on the West Coast. Primarily focused on community and neighborhood shopping centers, the firm and its predecessor, M&H Realty Partners, has been actively investing in West Coast retail property since 1993.
We present the top 25 agents in the company from January 1, 2014.
*As of October 28th
San Francisco, CA (September 26, 2014) –TRI Commercial/CORFAC International
President Tom Martindale, SIOR, announced today that C. Jean Ko, Senior Vice President and Office Leasing Group team leader, received a unique honor from the San Francisco-based education advocacy organization Room to Read. In recognition of Mr. Ko’s ongoing support, the organization dedicated a new library in Dhading, Nepal in his name. “We are very proud of Jean Ko’s ongoing efforts in support of Room To Read and congratulate him on this remarkable tribute. At TRI Commercial, we encourage agents to commit their time and financial support to the causes they are passionate about. Through these efforts, they truly embody our corporate social responsibility,” said Tom Martindale.
San Francisco-based Room to Read is a global not-for-profit organization actively empowering education through literacy and gender equality programs throughout the developing world. Over the past 10 years, more than 8.8 million children worldwide have benefited from Room to Read’s programs.
Falls Church, VA (September 6, 2014) – Scott Savacool, SIOR, CCIM, 2014 CORFAC Vice President and Chair of the Standards of Excellence Committee, is proud to announce TRI Commercial/CORFAC International as a 2014 Platinum Award Winner. The Second Annual CORFAC International Standards of Excellence Awards were handed out during a ceremony on September 5, 2014 at the CORFAC International 2014 Fall Summit in Chicago, IL.
Platinum Winners
This award recognizes CORFAC firms that exceed industry standards and operate with the CORFAC Core Values, Mission, and Vision in mind. The winning firms are the CORFAC affiliates who participate the most in the CORFAC network, are recognized in the industry for their excellence and leadership, and consistently represent the CORFAC brand.
“For over 37 years, TRI Commercial has prided itself on building lasting client relationships on a foundation of integrity and professionalism. Being recognized at the Platinum Award level for our significant contributions and branding efforts as part of our CORFAC International alliance is a tremendous honor, one that only serves to reinforce TRI’s goal of continuing to maintain and grow a tradition of excellence in commercial real estate.”
CORFAC International recognized twenty firms in three categories: Platinum, Gold, and Silver. TRI Commercial/CORFAC International was one of seven firms to win the 2014 Platinum Award.
About TRI Commercial/CORFAC International
At TRI Commercial, Building Great Relationships is more than a tagline; it’s an expression of our business plan. We build our relationships on a foundation of targeted client service and value-added information and we build them to last. Exceptional service is fundamental to our business. We measure our success on the strength of the relationship formed between agent and client. TRI has built a highly competitive and experienced team of professionals with one focus in mind: to form and maintain long-lasting relationships.
Our agents truly value the relationship more than the transaction.
About CORFAC International
CORFAC International (Corporate Facility Advisors) is comprised of privately held entrepreneurial firms with expertise in office, industrial and retail real estate leasing and investment sales, multifamily property acquisitions and dispositions, property management and corporate services. Founded in 1989, CORFAC International is celebrating its 25th anniversary in 2014. In association with FIABCI (the International Real Estate Federation) and global affiliates, CORFAC International offers commercial real estate services with market reach in 60 countries worldwide. Last year CORFAC firms completed more than 10,000 lease and sales transactions totaling approximately 368 million square feet of space valued in excess of $7.4 billion. For more information on the CORFAC network, contact 703.532.6160 or visit www.corfac.com.
Written by Bill Wilson
How many times, through the years, have you heard that question?
On the business front, we are looking for clues for the timing of the next business downturn. In San Francisco, we have had four years of recovery and all signs are glowing. In the last year, the tech sector has soared 17% to 53,300 jobs. In the Central Business District of San Francisco, the direct vacancy is around 6.7%. City-wide, the direct rate is 7.2%. That’s quite a different picture than in early-2001 (at the peak of the dot.com bubble) when there were only 32,500 people in high tech. At that time, the vacancy in the CBD was only 2%. Throughout the roaring dot.com days, the tech crowd shunned Class A, preferring Class B warehouse space South of Market for the low rates. For the last four years, during the new recovery, there is still a preference for Class B side-core buildings with high ceilings known as “creative space”.
Those converted SOMA warehouses are now mostly full, forcing a lot of tech users to rethink the necessity for “creative space”. What sets Airbnb, Linkedin, Twitter or Salesforce apart from the rest of the “tech crowd”? Do they need side-core “creative space” to do their jobs. Of course not! Out of necessity for space, the tech star, Salesforce, reversed course and concentrated on Class A in the CBD. On top of their prior space, this year they leased all of 350 Mission Street (450,000 r.s.f.) and over one-half of the former TransBay Tower at 415 Mission Street (710,000 r.s.f.). The easy walk in the CBD to BART/Muni has attracted corporations with employees who have to commute from all surrounding communities, reflecting San Francisco’s housing crisis. This places a premium on space close to major transportation facilities.
Despite the nearly 7% direct vacancy in the CBD, large users are having trouble finding spaces exceeding 100,000 r.s.f. For many of my readers, that won’t be a problem. But the earlier restriction of Proposition M could constrict the availability of new construction, sending rents higher. Prop M restricts the amount of square footage in yearly allotments to 875,000 sq.ft. Despite 5.1 million sq.ft. in unused building allotments at the end of 2013, recent market activity has sapped that figure to zero. That restricts the movement of more large corporations moving to S.F. The rent pressure will fall on the small tenants, particularly those who use less than 10,000 r.s.f. According to CoStar, in the CBD there are 240 spaces below 5,000 r.s.f. and 132 spaces in the 5,000-10,000 r.s.f. range. (Note: These don’t include sublease space.) There are choices, but not a lot!
So it looks like there will be limited space in the next two years. Use it to share in the prosperity which is presently upon us!
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