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Developers continue to react to tightening market conditions with Opus West being the latest big name to enter into the construction frenzy occurring throughout the Bay Area. Opus announced plans to break ground on a two-building, 448,000 s.f. campus on Sierra Point in Brisbane by May, 2008 with or without a lead tenant in-toe. Over 1.2 million s.f. of Class A office and R&D space will be completed in the Peninsula by year-end, 89 percent of which is master leased to biotech giants Genentech and Amgen. An additional 700,000 s.f. housed in five projects is expected to be delivered in 2008, of which only 37 percent has been pre-committed to.
Peninsula office and R&D vacancy rates have both fallen into single digits in 2007, while rental rents have increased by over 20 percent. Landlords are asking north of $50/s.f. NNN annually for new space, while existing Class A rates are in the $40/s.f. range. It is likely that the torrent pace of rental rate growth will slow in 2008, although a third consecutive year of double-digit rent growth is not out of the question.
Lease Transactions
Large transactions completed in the last 90 days:
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Reardon Commerce leased three floors totaling 91,000 s.f. from Hines Development Company at 1001 E Hillsdale Avenue in Foster City. Reardon set the high-water mark in the Peninsula in 2007, with a starting lease rate that exceeded $43s.f. NNN on an annual basis.
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Exelixis Pharmaceuticals leased 67,500 s.f. from Alexandria REIT at 249 East Grand Avenue in South San Francisco. The building is the first of four properties to be developed at Alexandria’s East Grand Technology Campus. Exelixis, who employs over 400 in their HQ campus located adjacent to the project, has an expansion option on the rest of the building.
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Fortify Software, Inc. subleased 30,299 s.f. from Oracle, Inc. at 2215 Bridgepointe Parkway in Foster City. Oracle successfully subleased the entire three-building Bridgepointe Corporate Center in the second half of 2007.
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Tradebeam leased 26,934 s.f. from TA Associates at 2 Waters Park Drive in San Mateo. The location serves as their global headquarters.
Building Sales
Building sales of note:
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Harvest Properties in partnership with Invesco, Inc. are rumored to have purchased Parkside Towers in Foster City from Hines Development Company for north of $500/s.f. Parkside Towers is a 400,000 s.f., two-building, Class A office project developed in 2001. Hines was successful in leasing nearly all of the projects 175,000 s.f. availability to credit tenants such as IBM, Reardon Commerce and Axicom in the second half of 2007.
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Pollok Financial Group purchased 350 Marine Parkway in Redwood City from KT Properties for $16.85 mmillion ($486/s.f.). The 34,697 s.f., multi-tenant, Class A office building was developed in 1999 and was 73 percent occupied at the time of sale.
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The Archon Group purchased two buildings from Broadway Real Estate Partners:
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801 Gateway Blvd. (136,075 s.f., Class A) in South San Francisco was 91 percent leased (40 percent of the project is leased at well above market rates). Archon purchased the project for $56 million ($412/s.f.). Major tenants include France Telecom and Genentech, Inc.
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8000 Marina Boulevard (197,000 s.f., Class A) in Brisbane for $65 million ($336/s.f.). The office project was developed in 2000 and was 100 percent leased at the time of sale, anchored by tenants including IGN Entertainment and WalMart.com, Inc.
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Hines Development Company purchased 600 Clipper Drive in Belmont from Broadreach Capital Partners for $50 million ($323/s.f.). The 154,000 s.f. office property is 100 percent vacant and has sat unoccupied for five years. Broadreach purchased the property in 2005 for $27.5 million ($168/s.f.).
New Development
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Opus West formerly announced plans to break ground on their two-building, 448,000 s.f. Opus Center at Sierra Point in May, 2008. The project includes eight and 10-story towers of 198,000 s.f. and 250,000 s.f. respectively. Opus joins Myers Development, Health Care Properties Investors, Inc. and Alexandria REIT, who are all developing speculative projects in Brisbane and South San Francisco.
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Alexandria REIT leased half of building 1 in their Alexandria East Grand Technology Campus to Exelixis Pharmaceuticals. The project is entitled for three additional buildings totaling 540,000 s.f. Alexandria will hold back on further construction at the East Grand campus until they complete sufficient leasing activity at their two-building, 165,000 s.f. Alexandria Technology Center development. This project is ready for tenant improvements and is located on the water just off E. Grand on East Jamie Court in South San Francisco.
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Steel is rising from the ground on Phase I of Myers Development’s 670,000 s.f. Centennial Towers project in South San Francisco. The 333,000 s.f. tower is on schedule for delivery for year-end 2008 and has yet to secure an anchor tenant.
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Construction continues on Stanford University’s two-building, 100,000 s.f., Class A office project on Sand Hill Road in Menlo Park. The project includes a 120 room, five-star hotel & spa operated by Rosewood Hotels & Resorts.
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