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Rental rates in San Francisco continue to escalate, as leasing activity remains robust through the end of 2007. View space in premium downtown assets are achieving rents in the $80/s.f. range. Due to the fervor of leasing activity from technology based companies, Class A space in San Francisco’s SOMA submarket is now commanding rents up to $50/s.f. The debt market downturn continues to sideline high leveraged buyers in San Francisco’s investment market; however foreign investors should pick up the slack in 2008.
Leasing Activity
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O’Melveny & Meyers signed a 170,000 s.f. lease at Two Embarcadero Center. The Los Angeles-based law firm will occupy 120,000 s.f. in 2008, and then take the remaining 50,000 s.f. in 2010. This represented a 70,000 s.f. expansion from their existing space.
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Barclay’s Global Investors signed a 112,000 s.f. renewal at 45 Fremont Street. Barclay’s Global Investors shed floors 15-17 and 33 & 34 and remain on floors 18 & 28-32 for an additional 5 years.
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Sega signed a ten-year, 69,546 s.f. lease at 350 Rhode Island Street. The new lease, which gives Sega exclusive exterior signage, will commence mid-2008.
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Service Source inked a 45,881 s.f. lease at 634 Second Street. The lease is another example of the southward migration of tenants from the north side of the Financial District to south of Market Street.
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Myspace.com is expanding its Los Angeles-based operations to San Francisco’s Rincon/ South Beach submarket. The online networking service will sublease 34,595 s.f. at 625 Second Street from Looksmart for two years, followed by a five year direct lease with expansion options for an additional 70,000 s.f.
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Approximately eight companies are currently looking for blocks of space 100,000 s.f. or larger.
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41 companies migrated to San Francisco in 2007. While 15 companies are returning tenants, 26 represent companies new to San Francisco.
Building Sales
Building sales of note for the quarter:
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GLL Real Estate Partners is in contract with an undisclosed buyer for 49 percent interest in 199 Fremont Street (396,200 s.f., Class A) located in the South Financial District. The downtown asset is expected to trade for approximately $675/s.f.
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CB Richard Ellis Investors is in contract with Lowe Enterprises for the purchase of Lot 26A, the development site of 500 Terry Francois Blvd (258,538 s.f., Class A) for approximately $500/s.f. The 6-story, Mission Bay office development is expected to be delivered to the market in the first quarter of 2008.
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Gramercy Capital Corp is in contract with American Financial Realty Trust for the purchase of One Montgomery Street (75,880 s.f., Class A) located in the North Financial District. The retail portion is 100 percent leased to Wells Fargo Bank.
Buildings on the market include:
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Sumitomo Bank is selling 123 Mission Street (342,000 s.f., Class A), located in the South Financial District. The building was purchased by Sumitomo Bank for approximately $405/s.f. in January 2005 and is expected to trade in the $500/s.f. - $550/s.f. range.
Construction Activity
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555 Mission Street, (555,000 s.f., Class A) Tishman Speyer’s office development located in the South Financial District remains on schedule to be delivered to the market in September 2008 without an anchor tenant.
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RREEF’s 680 Folsom Street (400,000 s.f.) located in the South Financial District is currently being renovated. The renovation, which also includes the addition of two floors, is scheduled for delivery in early 2009.
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The renovation of 370 Third Street (390,000 s.f.) is scheduled for completion in early 2008.
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Shorenstein, with J.V. partners the Swig Co. and Weiler & Arnow Management Co., has sold the development sites at 350 Bush Street and 500 Pine Street (the last remaining office-entitled development site in the North Financial District) to Lincoln Property Co. The undisclosed sale price is rumored to be $175/F.A.R foot. Construction of a 19-story, 350,000 s.f., Class A tower at 350 Bush Street and a 5-story, 50,000 s.f., Class A building at 500 Pine Street could break ground as early as spring of 2008.
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In August Beacon Capital Partners received final approval from the planning commission to construct 535 Mission Street (307,237 s.f., Class A). The entitlement process was expedited due to Beacon’s pledge to achieve Gold certification under the Leadership in Energy and Environmental Design (LEED) guidelines. The project is expected to break ground in the second quarter, 2008. When delivered in the spring of 2010, the project will be the first LEED Core & Shell Gold office tower in San Francisco.
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The two-floor, 175,000 s.f. addition to RREEF’s 185 Berry Street (262,500 s.f., Class A) located in the Mission Bay submarket will come online in early 2008.
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One Kearny Street, (61,000 s.f., Class B) located on the edge of the North Financial District and Union Square submarkets, will be adding 100,000 s.f. of Class A office space to its inventory. The development, currently under underway, will combine one new structure with two existing structures to form a new single office building. The new structure, along with the existing annex, will function as seismic book ends to the historic 1902 structure.
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The four-floor, 71,324 s.f. addition to Broadway Partner’s 120 Howard Street/188 Spear Street (42,819 s.f., Class B) located in the South Financial District is scheduled to begin in the first quarter of 2008. With a twelve month construction period, the four new floors will be ready for occupancy in first quarter, 2009.
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