San Francisco continues to lead the West Coast office market and serve as a focal point for global and domestic office building investment. Recent sales of Class A buildings are averaging over $600/sf, with a high in excess of $1000/sf. The sale of EOP's 10 properties set new highs in terms of square foot prices for a broad sector of the market, while at the same time continued the trend of landlord consolidation. The subsequent resale of EOP’s portfolio to Morgan Stanley, and their subsequent sale of partial interests to others has created the ‘EOP effect’ which, coupled with the current tightening credit markets, raises questions about either the new buyers ability to achieve rents commensurate with their purchase prices, or the ability of tenants to pay those rents. Class B buildings in good locations are selling for over $350/sf, with renewed institutional interest in older buildings.

The office market is expanding into newer or non-traditional areas as tenants seek larger floor plates and lower rents than available in the Financial District. Alternatively, tenants are opting for lower floors in the Financial District as the rental differential between upper view floors and lower ‘cityscape’ floors widens. There is also increase interest in the suburban markets served by BART or with good access and parking.

Rental rates, especially for Class A view space have rebounded dramatically from the market downward adjustment of the early part of the decade. Rents are averaging over $42/sf, with recent transactions approaching $90/sf for high end view space. There are several blocks of quality space, such as the top two floors at One Maritime Plaza, that are quoting $100/sf. Quality Class B space has also increased dramatically, with rents averaging in the high $30’s to low $40’s. The South of Market area has recovered almost completely from the dot.com crash, and is now experiencing shortages of quality space, while buildings scheduled to be converted from office to housing are reverting back to office. Vacancy is less than 10% across the board, with some sectors at less than 7%.

Tenant demand appears strong in the legal, financial, venture and technology sectors. BioMed is focused in the Mission Bay area and is experiencing strong growth. The future of the market for tenants who cannot afford to pay future anticipated rents may be grim, especially for smaller local and regional companies in more traditional business models. The increased cost of doing business in San Francisco, taxes, parking, labor, rent, continues to attract firms to the suburban markets.

The residential market remains strong, with high rise development in and proximate to the downtown office market changing the city's skyline. Hotel construction is strong.

Our tenant focus is on all areas of the office market, in each of the several sub-markets differentiated by location and distinct product and user types. The rapid change in ownership has created different types and styles of landlords, each with distinct economic goals and capabilities. In depth knowledge of each is imperative to avoid faulty comparisons or inappropriate decisions.

CresaPartners is an international corporate real estate advisory firm that exclusively represents tenants and specializes in the delivery of fully integrated real estate services, including: Transaction Management, Project Management, Relocation Planning and Management, Strategic Planning, Workforce & Location Planning, Subleases and Dispositions, Lease Administration, Capital Markets, and Facilities Consulting. With more than 50 North American offices, CresaPartners is the largest pure tenant representation firm in the U.S. and Canada. Through a partnership with Atisreal international real estate group, CresaPartners is a member of one of the leading real estate organizations in the world, covering 35 countries.