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.

 

 

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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

 

 

Millennial migration favors San Jose despite cost of living, says census

The Bay Area is getting more mixed messages on the seemingly perennial question of if and how quickly residents are fleeing the region and the state.

The finance company Smart Asset released a report Friday claiming that San Jose is one of the most popular destinations for millennials on the move despite its high cost of living.

Smart Asset economist Derek Miller sorted through U.S. Census data to figure out which U.S. cities got the greatest inflow—i.e., the margin of new residents relocating to a city over the number of those moving away—with the ever-topical millennial demographic, here defined as anyone between the ages of 20 and 34 in 2016.

Suffice to say, San Francisco did not acquit itself well with the trend, despite previous census analyses revealing that the city’s median age is gradually getting younger with each passing year. Instead, millennial movers reportedly favored San Jose, which came in seventh place on Miller’s list, the only California city to break the top ten.

 

 

Read more on Curbed SF

 

 

After two projects sank, can San Francisco find developers for decaying waterfront?

The new effort is one of the largest but also potentially costliest redevelopment opportunities in the city.

The Port of San Francisco is seeking ideas for new uses at 13 historic waterfront piers, in one of the largest but also potentially one of the costliest redevelopment opportunities in the city.

The agency wants proposals from both large developers and smaller tenants such as nonprofits, arts groups and retailers to revive the piers, which are now vacant or used for parking or storage.

Some previously renovated piers have been financial successes. Waterfront offices at the Ferry Building and Piers 1 1/2, 3 and 5 have signed tenants for rents over $100 per square foot. Control of the Piers later sold for $103 million in 2016, and the Ferry Building is expected to be sold to Hudson Pacific Properties for around $300 million, according to sources tracking the market.

But two recent redevelopment efforts failed because of the high costs of rehabilitating and seismically protecting piers. A study for the Port found that $74 million to $10 million would be required to bring a single pier up to code. Last year TMG Partners and Premier Structures, Inc. exited an office, event and restaurant space proposal at Pier 38 after the cost to repair the pier was expected to be as high as $122 million.

 

 

 

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Exclusive: Nordstrom to close Stonestown location, leaving S.F. mall anchor-less

Nordstrom is preparing to close one of its San Francisco locations amid monumental shifts in the retail market that have upended the traditional department store model. 

The Seattle-based retailer is set to vacate its 174,000-square-foot location at Stonestown Galleria, according to Retail West Principal Matthew Holmes and another source with knowledge of the decision, who spoke on the condition of anonymity because of pending lease negotiations at the property.

Holmes said the plan is for Nordstrom to close the location, which it has leased for the past three decades, leaving GGP another opportunity to backfill it with smaller tenants.

“It was never the grand Nordstrom like it is downtown,” Holmes said of the retailer’s 350,000-square-foot Market Street location. “They do so much more business in downtown, because it’s a showcase store for them. They’ve realized they don’t need two stores in San Francisco.

A Nordstrom spokeswoman said in an email that the retailer did not have any store closures to announce. Stonestown Mall operator General Growth Properties’ Darren Iverson, a senior general manager, declined to comment.

 

 

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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.

 

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Huge investors chase San Francisco’s $300 million Ferry Building

The 1889 building is drawing interest from some of the country’s biggest landlords.

Some of the country’s biggest real estate investors want to buy control of San Francisco’s iconic Ferry Building in a deal that could exceed $300 million.

Kilroy Realty Corp, Hudson Pacific Properties In.c, Invesco Plc, and Thor Equities, are all competing to acquire the building, according to five, sources. A buyer could be selected within a month, said the sources.

The pending deal is another sign of San Francisco’s enduring appeal for major office investors as rents have jumped and little supply is being added.

The 1889 Ferry Building at the eastern terminus of Market Street includes 175,000 square feet of office space and 65, 000 square feet of retail in a popular ground-floor marketplace. The building and its weekly farmer’s markets draw tens of thousands of visitors a week. Its office space with waterfront views also commands some of the highest rents in the city, up to $100 per square feet.

Read more from San Francisco Business Times 

 

 

San Francisco’s homeless crisis is driving tourists away

San Francisco’s hotels are facing a serious problem.

The city’s idyllic image of the Golden Gate bridge and grandiose views of the bay are being replaced by concerns about needles and feces littering the streets, homeless citizens sleeping on sidewalks or in Bay Area Rapid Transit stations and aggression toward visitors by people with untreated mental illness. Visitors are noticing and rethinking booking events and vacations at hotels around the city.

San Francisco’s homeless population was down by 0.5% in 2017 compared to 2015, but is about 17% higher compared to 2013, according to SFist. While homelessness is nothing new for the city, hoteliers and local business say street conditions have worsened.

Within 153 blocks in downtown, there were over 300 piles of feces, 100 drug needles and trash on every block, a recent report by NBCBayArea revealed. Complaints of poor street conditions to 311 have skyrocketed in recent years. In 2016, 311, a city agency where visitors and residents can report issues or seek information about the city, received 44,000 complaints of encampments, human waste and needles, up from 6,300 complaints in 2011, according to the San Francisco Chronicle.

“[Visitors] are noticing it and hearing about it and saying, ‘well, why would I bring my conference here?’” Hotel Council of San Francisco Executive Director Kevin Carroll said.

Visitors often have rave reviews for the local restaurants and hotel service, but say they will not come back or will not bring their families here, he said.

San Francisco is not the only major West Coast city dealing with issues of homelessness and street conditions impacting tourism and hospitality. Anaheim, home to Disneyland with its spotless, litter-free Main Street, U.S.A., has the stark contrast of homeless people who live just outside the park. The city has been looking into ways to help its homeless population, such as providing emergency shelter and employment opportunities. Honolulu also took action in recent years on cleaning up the streets, including around its popular Waikiki area.

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San Francisco’s largest office landlord to break ground on $265 million Oakland tower

Boston Properties, San Francisco’s largest office landlord, will break ground on May 2 on a 402-unit apartment tower next to Oakland’s MacArthur BART station.

The 260-foot project at 532 39th St. will be the tallest building in North Oakland and the company’s first residential project on the West Coast.

The project in the Temescal district will be among a half-dozen Oakland towers to start construction in the last two years, an unprecedented real estate boom that’s drawing some of the country’s biggest developers to the city. Other developers include Lennar Multifamily Communities, Shorenstein Properties and Carmel Partners.

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Facebook to move into big WeWork outpost as co-working company prepares to open largest-ever location

Talks between the two giants about WeWork’s new Mountain View location, its largest sublease to-date, have been ongoing for months. But this week the two finally struck a deal.

When WeWork this year opens its first Mountain View offices — its largest-ever lease — half of that space will be filled by Facebook.

Both companies told the Silicon Valley Business Journal about Facebook’s sublease which totals more than 200,000 square feet in one of two new office buildings at The Village at San Antonio Center. The deal comes after months of discussions between the two companies. The second WeWork office building on the site will be open to any company seeking co-working space.

Initially, the talks between the New York-based co-working company and the Menlo Park-based tech giant had been leading toward Facebook taking over both buildings at 391 and 401 San Antonio Road, which would total about 450,000 square feet, the Business Journal reported in February. But Facebook in recent months has rapidly snapped up huge swaths of office space in Silicon Valley — including about 1 million square feet in Sunnyvale — and its needs evolved quickly, two sources with knowledge of the discussions told the Business Journal.

Facebook will set up shop in the eight-story, approximately 225,000-square-foot office building at 401 San Antonio Rd., which is slated to be ready for move-in by early September, according to WeWork.

Read more from Silicon Valley Business Journal