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The era of big leases is over as San Francisco awaits next crop of towers

The era of massive office leases — including the likes of Salesforce, Dropbox and Facebook — is coming to a halt now that most of San Francisco’s pipeline of new office buildings is spoken for. Robust demand for office space has filled up buildings months or years ahead of completion, but development is drying up.

In May, another company declared it had signed the “biggest office lease ever” in San Francisco. The trend of going bigger and bigger started with Salesforce taking 714,000 square feet in Salesforce Tower at 415 Mission St. in 2014 followed by Dropbox taking 736,000 square feet in 2017 in the Exchange in Mission Bay. Then Facebook topped both with a deal to gobble up the entire, 750,000-square-foot Park Tower.

But, the era of massive office leases is coming to a halt — at least for the next few years — now that most of San Francisco’s pipeline of new office buildings is spoken for. Robust demand for office space has filled up buildings months or years ahead of completion, but development is drying up.

Some industry insiders say more building would be going on if it weren’t for Proposition M, a 1986 voter-approved law that limits how much office space can be approved in a given year. Still, others say that factors such as the lengthy city approval process and availability of development sites has also put the brakes on office development.

 

 

Read more on San Francisco Business Times

 

 

Amid office space crunch, Google grows in San Francisco

As its fellow tech giants jockey for space in downtown San Francisco, Google has signed another office lease in the southern Financial District, The Chronicle has learned.

The Mountain View company is taking an additional 57,299 square feet at Hills Plaza at 2 Harrison St., according to real estate data company CoStar. That brings the total in the complex, where Google has had an office since 2007, to more than 400,000 square feet.

Google did not respond to a request for comment. Architecture firm Gensler occupied the space before recently moving to 45 Fremont St. A Morgan Stanley investment fund owns Hills Plaza.

Google is also in talks to sublease space from Salesforce, two sources said. The potential deal could be up to 228,000 square feet at Rincon Center at 101 Spear St. No contract has been signed.

Salesforce is one of the few large tech tenants vacating space as it consolidates workers into Salesforce Tower, which opened in January, and adjacent buildings. Salesforce, the city’s largest tech employer with 7,500 employees, is also subleasing space at the Landmark building at One Market Plaza.

Google’s expansion follows office leases by Facebook, Dropbox and other fast-growing tech companies, which have broken records for size and made San Francisco one of the priciest and tightest office markets in the country.

The office vacancy rate in San Francisco’s southern Financial District, which includes the area around the Transbay Transit Center, is 4.6 percent, down from 6 percent in the first quarter, according to CoStar.

“The new development has pretty much been snatched up,” said Jesse Gundersheim, CoStar’s San Francisco market economist. “Opportunity like sublease space from Salesforce is pretty rare.”

Read more on The San Francisco Chronicle

 

 

Exclusive: 44-story Transbay tower proposed next to transit center

Another tower could join the forest of new skyscrapers in San Francisco’s Transbay district.

New plans for a 44-story highrise at 540 Howard St. call for 149 housing units and 52,403 square feet of office space. An existing three-story building, which houses Temple Nightclub, would be demolished.

The site is next to numerous massive projects, including the $2.2 billion Salesforce (formerly Transbay) Transit Center. On a neighboring parcel, Hines and Urban Pacific Development have proposed a 60-story, 800-foot tower with housing, office and a hotel at 550 Howard St., known as Parcel F. Developer Crescent heights has approval for a 495-foot residential tower at 524 Howard St., but the project has been delayed. Rising construction costs have made towers more challenging to build.

Warner Schmalz, an architect at Ankrom Moisan, is designing the 540 Howard St. project. The firm said he wasn’t immediately available to comment. property owner Wendy Hemming couldn’t immediately be reached for comment.

It isn’t clear how tall 540 Howard St. would be, but the site is zoned for 450 feet, or less than half the height of the nearby 1,070-foot Salesforce Tower.

 

Read more from San Francisco Business Times

 

 

 

Workplace needs a place to chill, Millennials say

What is one thing millennials want in an office that their parents probably never thought of? A place to relax.

That is the conclusion of a survey conducted by U.K. office interior specialist Dale Office Interiors, which found that over a third of 18- to 34-year-olds would favor prospective employers offering “chill-out zones.”

There is no exact definition of a chill-out zone, but presumably most people know it when they experience it. Previous generations understood the concept, but few thought of the workplace as a place for chilling out. Home, certainly. A bar, maybe, for those in a certain mood. But not the office.

“People want to enjoy working, playing, essentially they want to enjoy life!” Allford Hall Monaghan Morris founding partner Simon Allford told The Architects’ Journal. “Buildings need to enable this by offering a range of different working and relaxing spaces on the micro scale of the office and on the macro scale of the building.”

Overall, what millennials want is of high interest to employers. In the U.S., Google searches for “how do millennials want to work and live?” increased from zero in 2015 to 15,900 in 2016 and 13,400 in 2017, according to Fresh Business Thinking.

 

Read more from Bisnow

 

 

WeWork signs biggest lease of Q1 in San Francisco

WeWork just added 251K SF to its San Francisco footprint.

The co-working provider inked the city’s largest lease of the first quarter at the Union Bank Building with landlords Kennedy Wilson and Takenaka Corp., the San Francisco Business Times reports. WeWork signed an 18-year lease for all 20 floors and plans to renovate the building.

The JV bought the building at 400/430 California St. in 2016 for $135M when it was fully leased to MFUB Union Bank, which plans to vacate the building.

The co-working company began occupying it newest location this year at Salesforce Tower, where it leases 75K SF. WeWork has rapidly expanded its Bay Area footprint in recent years and signed leases for over 1M SF in 2017. It also has expanded into Oakland, San Jose and Mountain View within the last two years.

WeWork Managing Director for U.S. and Canada West Jon Slavet told the San Francisco Business Times that the company cannot keep up with demand in the Bay Area, where its community is now over 13,000 members. Its members range from startups to enterprise businesses.

WeWork plans to open its first phase at 430 California during Q1 2019.

Read more from Bisnow

 

 

Five Workplace Trends The Commercial Real Estate Industry Must Prepare For

The most significant innovations of the last century have a couple of common elements: They solved simple problems in the lives of everyday people, and almost nobody recognized that these problems needed to be solved.

Legend has it that Henry Ford said, “If I had asked people what they wanted, they would have said faster horses.” Modern transportation, internet you can take with you, the ability to easily connect with someone on the other side of the planet — no one really wanted these things before they were invented. But soon after these innovations became widely available, people could not imagine life without them. Chances are, you never knew you needed a smartphone. But now, imagine giving it up for a day and being without directions in your pocket or the answer to any question at your fingertips. There’s simply no going back.

But despite such large shifts, one daily environment has remained stubbornly unchanged for decades: the office.

Despite a tight labor market putting pressure on employers to attract talent, the vast majority of the corporate workforce still works in dull, cubicle-laden office buildings, designed solely for space efficiency and with no regard for human-centered design. Yet we know environments can have a profound impact on our mental health and work output, and we know that experience matters more and more for the next generation of leaders. The office of today is not very conducive to the innovative thinking needed to create the products of tomorrow.

As the co-founder of a workplace hospitality platform, I’ve consistently heard from the 250,000 people who walk through our doors each year that they want their own offices to look and feel more like the ones shared and alternative workspaces provide on a short-term basis, replete with more flexibility, choice and experience in their office environment.

That means that we need to forget “office” and start thinking in terms of “workplace” — a mindset shift that will help commercial real estate professionals understand the trends that will challenge our industry’s most fundamental assumptions in the coming years.

Read more from Forbes

 

 

Major office park near new Facebook, Tesla outposts in hot area of Fremont sells for $73 million

A 323,000-square-foot business park in Fremont’s Ardenwood neighborhood is changing hands for $73.3 million.

This is just months after Tesla and Facebook announced plans to open satellite offices in the area, the Mercury News reports.

The four-building complex sits near the intersection of Kaiser Drive and Ardenwood Boulevard, just minutes from the east side of the Dumbarton Bridge. The buildings are currently being leased by Boehringer Ingelheim, a German pharmaceutical company.

Until recently, Ardenwood had largely been popular with relatively stodgy biotech and biomedical companies, flying under the radar while properties just a few miles away in Palo Alto and Mountain View commanded top dollar for space from software startups.

That could be changing.

In October, Tesla signed a lease for 229,000 square feet of office space in Ardenwood, enough room for some 1,500 employees. The buildings had previously been occupied by now-defunct biotechnology company Genitope.

Read more from San Francisco Business Times

Why WeWork is giving away free office space in S.F. and 10 other cities

After more than tripling its Bay Area footprint last year, WeWork is now ramping up its philanthropic efforts.

The co-working startup is providing free office space for 10 entrepreneurs who are military veterans for six months in San Francisco and 10 other cities. The program, Veterans in Residence, is a partnership with BUnker Labs, a Chicago-based nonprofit incubator for veterans. It’s the first time WeWork has provided free space in multiple cities through a national program.

In WeWork’s 25 Taylor St. office in the Tenderloin, a 10-seat office that is normally priced at $5,800 per month is now operated by Bunker Labs. In the country’s most expensive office market, it’s a rare offering of new, free space.

Finding affordable office space is “incredibly expensive. It’s time-consuming. It’s difficult,” said Mike Nemke, a former member of the U.S. Army Special Forces who served in the Middle East and joined the veterans program. Nemke is co-founder of a data science startup, Datamyne.ai, and MKTR.ai, which provides marketing and consulting to other startups.

Read more from San Francisco Business Times

 

 

Investors are spending big bucks for a piece of Silicon Valley office

It is already proving to be an active year for Silicon Valley office.

In the last few months, investors have spent millions to expand their Silicon Valley office portfolios.

San Jose’s office market, which has been relatively slow in recent years, picked up following Google’s plans to build a massive campus near Diridon Station. The Peninsula, which includes Palo Alto and Menlo Park, also has seen additional activity.

Santa Clara County office vacancies were about 12% in 2017 and the likes of Google, Apple and Facebook continue to buy or lease office space around the county, according to The Mercury News. Adobe Systems bought a parcel at 333 West San Fernando for $68M in January and plans to build a fourth office tower. Google continues its buying spree as it prepares for its Diridon Station campus and early this year bought three North San Jose office buildings at Midpoint@237, a business park developed by Trammell Crow, for over $117M.

Investors are expanding their San Jose office portfolios as well. DivcoWest bought three buildings from Cisco Systems in North San Jose in January, according to the Silicon Valley Business Journal. The $50M sale was for the buildings at 10 and 80 West Tasman Drive and 125 Rio Robles Drive, totaling over 313K SF.

Read more from Bisnow

 

 

 

Small tech companies finding niche in San Francisco office

Large blocks of space are in high demand among Bay Area tech companies expanding into and within San Francisco.

However, startups and small tech companies from outside of the Bay Area are carving a niche within the city as well. Some are taking advantage of leasing smaller office blocks or moving into co-working space as an entry into the city’s office industry.

“San Francisco continues to attract startups that are in hyper-growth mode,” Kilroy Realty Senior Vice President, Asset Management Rick Buziak said in a press release.

Tel Aviv-based AppsFlyer opened an 11K SF U.S. headquarters in mid-February at Kilroy Realty’s 100 First St., where Okta signed a 207K SF lease in December. The South of Market office offers capacity for further growth. The mobile attribution and marketing analytics company recently secured $56M in Series C financing. The office on the 25th floor offers an open-office plan.

Read more from Bisnow