S.F. Could Run Out Of Space
Despite a flurry of skyscrapers debuting soon in S.F., the city is still at risk of running out of space, according to real estate pros at Bisnow's State of the Market event yesterday. (We await your prototypes for underground apartments.) Videos courtesy of Allen Matkins.
Jay Paul Company CIO Matt Lituchy is busy with the tallest mixed-use tower West of the Mississippi at 181 Fremont and expects to see more clustering in the market, like how Salesforce breaks up its presence between buildings. A tenant could have 50k SF in one building and 100k SF a few blocks away. (That's a good way to hide from your boss without technically leaving the "office.") His company just broke ground on 2M SF in Sunnyvale at Moffett Park. In addition, he expects to see more Silicon Valley companies expand and plant a flag in the city. Video.
Allen Matkins partner Anton Natsis, who moderated, asked panelists about plans to scoop up buildings in NoMa as SoMa options dry up. Years ago, when Matt’s 181 Fremont project was announced, there were naysayers because tech tenants weren’t interested in high-rises back then. That’s changed, and typical tech tenants will still flock to a location other techies are going, even if they have to go vertical; what they are looking for is proximity to transit and amenities. Anton asked panelists where they see themselves putting their money next.
Shorenstein CIO Charlie Malet says he’d love to own in NoMa for the right price. The center of the city has slowly shifted south, but he thinks there will still be demand for Class-A, rectangle boxes in NoMa. Mid-Market, where Charlie’s prized Twitter-leased property stands, is not that big and basically leased up. Shorenstein succeeded in that area due to availability hitting the market at the right time. He says it’s a great residential story in Mid-Market that still has room to grow. S.F. stands apart from other hot real estate markets because it enjoys a combo of tech, VC, and quality of life. (And the occasional Colin Kaepernick sighting.) Video.
Jobs build buildings, says CBRE managing director Russell Ingrum, and S.F. and Houston sit at the top when it comes to job creation. Tech represents half the leasing velocity in the market, which means other sectors are gaining ground. Many leases are expansions as tenants come up for renewal. There's some 4M SF of net absorption expected over the next three years, so new developments can keep competition-driven spikes at bay. Video.
SKS Investments managing partner Paul Stein says some companies are using views to attract talent, like Supercell’s recent top-floor lease of 555 Cal. S.F. has always been a smaller-sized tenant market, and he wonders whether that will change with big blocks eaten up by single tenants like a Chevron. With ample space on the market, it's an unusually good time to be leasing; he’s not taking it for granted because it doesn’t happen too often. (That's the same reason reason we watch the Olympics, despite the fact that curling isn't terribly exciting.) In terms of the types of build-out, there’s a herding instinct to go brick and timber and maybe take a ceiling out. Video.
Hines senior managing director Cameron Falconer isn’t concerned about the amount of office space being added to the market (that’s good, considering his gigantic Transbay Tower delivers in a few years). He is worried about the lack of options for tenants down the road. As the economy improves, he thinks S.F. will literally run out of space. Tech, law firms, and financial services firms are headed toward the same type of programming, with across-the-board requests for high ceilings, access to light, and great air quality. Transbay visitors won’t need to switch elevators to shoot up to the 61st floor. That'll be an interesting ride, he says. Video.
