San Francisco’s office vacancy factor continues to remain “stuck” at 18.5% and 24% with subleases included. This vacancy factor has remained at this level since February 2002.
The average size transaction in San Francisco remains at 2,800 square feet, reflecting a continued trend of smaller businesses, 10-15 employees, making up the majority of new leasing activity.
The vacancies less than 5,000 square feet continue to drop slightly to now 6.2%. Many brokers are reporting more difficulty finding quality space in this size range. “Left-over” space with limited views and insufficient layouts make up the majority of the remaining spaces.
There is no sign that landlords are beginning to take larger spaces and divide them to make the smaller market sector. Since rents remain flat in the low to mid 20’s range, owners have been unwilling to divide their large vacant spaces due to the excessive cost of build-out against the returns they would receive from these lower rents.
Some buildings such as 539 Bryant Street, are finding new ways to attract new tenants. Faced with two spaces that cannot be divided (one 5,400 square feet and the other 7,200 square feet), JBL Real Estate, owners of 539 Bryant Street, is offering to charge rent on only 80% of the total square footage for the first year. This will allow smaller firms the ability to rent the space they need now, ands have growth space built in for their future.
In addition, in order to avoid costly tenant improvement costs, JBL will also offer to buy all necessary furniture, phone system and wiring to offer a truly “turn-key” leasing opportunity.
Until there are true signs of an economic recovery, owners such as JBL will be the only “winners” in this “dreadful” office market.
|
Peter
Rosenthal and Steven Newhauser are agents 
