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office report
quarterly report
Includes SOMA Office Report
www.ccarey.com
Integrity Knowledge
San francisco San francisco office
third quarter
Table of contents
Page
Coverage Map 1
C&C Focus 6
Agent Roster 19
Cornish & Carey Commercial San Francisco Quarterly Report is based on a quarterly survey of competitive office buildings. The data included in this
report incorporates not only space presently available on the market, but also space which we have been led to believe will come onto the market
in the foreseeable future.
Information contained herein has been given to us by the owner of the property or other sources we deem reliable. We have no reason to doubt its
accuracy, but make no guarantee, warranty or representation about it. All information should be verified prior to lease or purchase.
San francisco San francisco office
third quarter
coverage map H
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
This third quarter was one of the most expires November, 2010. The space Leasing
tumultuous quarters in recent history. houses WaMu Card Services. After an upward trend lasting over 4 years,
Headline after headline of the crisis in the rental rates are beginning to show signs of
financial markets spilled over into all sectors Merrill Lynch – After being battered by slippage. Class “A” asking rates have dropped
of the economy. While San Francisco’s the housing crisis and seeing their stock to an average of $44.07, a decline of 6% from
tenancy is more diverse than that of New drop 78% in 12 months, Merrill Lynch was last quarter. Some submarkets have been more
York, the fallout of Wall Street is still felt able to dodge a complete failure by opting resilient than others. SOMA, which has
here. Here is a brief summary of San for a $50 billion stock buy-out by Bank of historically been favored by creative companies
Francisco’s exposure to the turmoil in the America. Merrill Lynch leases over 275,000 as opposed to financial services, saw no drop in
market: sq. ft in the city: average asking rates. For landlords with
• 101 California 184,434 sq. ft. (65,000 premier view and creative spaces, premium
Lehman Brothers – Was the first subleased) on floors 9, 11-14, 19-21, 24 & rental rates can still be achieved. Some owners
investment bank to file for bankruptcy since 25. The lease expires October 2012 have already reassessed their pro-forma and
1990, and based on assets it is the largest • 600 California – 47,789 sq. ft. on floors 7, backed down from their ambitious
bankruptcy in American history. Relative to 8 & 15 through October, 2014. underwriting. In this market, the only tenants
Lehman’s 1.1 Million Square foot • 220 Montgomery – 15,410 sq. ft. on the making decisions are those who have expiring
headquarters in New York, their space in 6th floor through January, 2011. leases or are in need of expansion space. For
San Francisco is minimal: those who still have some term left and were
• 555 California – 60,766 sq. ft. on floors 30 First Republic – Having been acquired by
Merrill Lynch in 2007 for $1.8 billion, their considering signing an early renewal, the general
& 41. The lease expires in September, attitude in the market has been to “wait and
2011. future has now been put into question due
to the sale of their parent company. There see”.
AIG – Received an $85 Billion bailout from are several possibilities: B of A may roll up
the federal government to prevent some or all of First Republic’s operations,
bankruptcy. In return the government they might leave the bank untouched, and
received 100,000 convertible stock shares it’s reportedly possible that First Republic
that equate to a 79.9% equity stake in the may purchase itself back from B of A and
company. AIG signed a renewal and return to independent banking. First
expansion of their space in 2007: Republic is headquartered in San Francisco:
• Rincon Center (101 & 121 Spear Street) – • 111 Pine – 113,777 sq. ft. (15,107 sq. ft. is
190,152 sq. ft. (42% of the property). The retail space) on floors 1-9.
lease expires in July, 2017. AIG recently • 388 Market (1 Pine) – 83,000 sq. ft. on
put $10.8M into their space as part of floors 2-5, 11&12.
their renewal. Work to be completed in
March, 2009. When the work is Wachovia – Currently Citigroup and
completed 23,395 sq. ft. of temporary Wells Fargo are competing to purchase all,
space will be given back. or a portion of, the company.
• 50 California – 4,443 sq. ft. on the 33rd • 4 Embarcadero Center – 63,000 sq. ft.
floor. Lease expires June, 2009. (21,000 subleased) on floors 7-9. The
• 555 California – 10,271 sq. ft. on the 31st lease expires October, 2010.
floor. Lease expires July, 2010. • 555 California – 30,087 sq. ft. on the 23rd
floor. The lease expires January, 2015.
Washington Mutual (WaMu) – With
over $300 Billion in assets, made headlines as Heller Ehrman LLP - After failing to find
the biggest bank failure in U.S. history. They a Merger and Acquisition partner the 119-
saw a “run on the bank” resulting in year old firm is in dissolution mode.
customer withdraws of $16.7 Billion in the • 333 Bush – 251,300 sq. ft. on floors 7-11
10 days following Lehman’s bankruptcy. The & 26-34. The lease expires June, 2018.
Seattle-based company was seized by federal
regulators who, in the interest of protecting Development
depositors’’ savings, sold the company’s In July you could hear the pylons being
banking assets to JP Morgan Chase for pounded into the ground at 535 Mission.
almost $2 Billion. It is the first new office project to break
• 123 Mission – 105,543 sq. ft. (32% of the ground in the financial district since 555
property) on Floors 4-9, 19 & 27. The Mission began construction in 2006. The
lease expires December, 2010 excluding 293,750 square foot building is scheduled
the 27th floor which expires June, 2012. for completion in 2010. The developer,
• 201 Mission – 62,591 sq. ft. (13% of the Beacon Capital Partners, is seeking LEED
property) on floors 7 & 10-12. The lease certification for Core & Shell.
2
SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
Historical Trends
Class A Quarter Total RSF Direct Vacant Sublet Vacant Vacancy Absorption Rental Rates 1
2004/Q3 43,979,849 5,565,317 1,890,183 17.0% 354,905 $28.60
Q4 44,284,268 5,544,641 1,781,343 16.5% 129,516 $28.60
2005/Q1 44,430,772 5,828,447 1,131,954 15.7% 365,583 $29.70
Q2 45,526,350 5,773,841 1,130,434 15.2% 60,241 $31.57
Q3 45,134,630 4,934,788 1,408,976 14.1% 464,534 $32.56
Q4 44,794,249 4,644,515 1,246,239 13.2% 303,271 $33.40
2006/Q1 45,181,682 3,802,372 717,040 10.0% 283,495 $33.46
Q2 45,265,952 3,899,723 692,683 10.1% 111,350 $35.27
Q3 45,267,770 3,412,272 583,281 8.8% 213,537 $35.88
Q4 45,278,227 3,224,700 643,023 8.5% 210,841 $36.80
2007/Q1 46,668,376 3,422,734 441,075 8.3% 91,954 $42.02
Q2 46,663,509 3,286,066 487,191 8.1% 92,522 $43.32
Q3 46,663,509 3,083,395 355,421 7.4% 240,597 $46.82
Q4 46,663,509 2,976,387 352,776 7.1% 154,149 $46.82
2008/Q1 47,322,203 2,754,242 365,733 6.6% 28,808 $46.91
Q2 47,595,475 3,243,799 393,792 7.7% (325,481) $46.94
Q3 47,595,475 3,448,110 744,607 8.8% (253,332) $44.07
HISTORICAL VACANCY VS. LEASE RATES
1
Rates are Quoted as Full Service
2
Absorption is based on available square footage and may vary from Vacancy 0 – 3%
3 Vacancy is based on vacant square footage
* Includes all Classes of Office Space
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
BY THE NUMBERS
Top 5 Leases
Tenant Lessor (Sublessor) Address Sq. Ft.
Pfizer, Inc. Alexandria Real Estate 455 Mission Bay Boulevard 105,000
Squire, Sanders & Dempsey LLP TIAA-CREF 275 Battery Street 67,000
Arup ( S ) JP Morgan Chase 560 Mission Street 49,726
Carroll Burdick & McDonough ( R ) State Teachers Retirement System of Ohio 44 Montgomery Street 49,528
Symantec ( R ) ( E ) Kennedy & Associates 303 2nd Street 44,963
Pending Leases
Tenant Lessor (Sublessor) Address Sq. Ft.
Autodesk Glenborough Realty Trust, Inc. 60 Spear Street 116,321
Lieff Cabraser Heimann & Bernstein LLP ( R ) TIAA-CREF 275 Battery Street 46,000
OpenTable.com CFRI Market Street, LLC 799 Market Street 35,000
Norcal Waste Systems, Inc. ( R ) Arden Realty Golden Gateway Commons 25,000
R: Renewal
E: Expansion
S: Sublease
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
BY THE NUMBERS
Projects Planned
Building Sq. Ft. Owner Location Status
222 Second Street 617,000 Tishman Speyer Properties South Financial District Planning
350 Bush Street / 500 Pine Street 350,000 Lincoln Properties North Financial District Approved
350 Mission Street 385,000 GLL Real Estate Partners South Financial District Planning
Piers 27-31 300,000 Shorenstein Company North Waterfront Planning
505 Howard Street (Foundry Sq. III) 252,500 Wilson Meany Sullivan / Stockbridge South Financial District Approved
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
Historical Trends
Class A Quarter Total RSF Direct Vacant Sublet Vacant Vacancy Absorption Rental Rates
2004/Q3 19,838,132 2,680,889 777,290 16.5% (104,547) $29.90
Q4 19,838,132 2,669,307 535,675 17.4% (191,053) $30.60
2005/Q1 19,838,132 2,818,136 449,393 16.2% 253,197 $31.10
Q2 19,819,889 2,828,293 487,826 16.5% (62,593) $32.75
Q3 19,805,988 2,365,519 507,236 16.7% (41,960) $33.01
Q4 19,817,460 1,922,272 637,961 14.5% 157,926 $34.31
2006/Q1 19,817,460 1,773,127 314,449 12.9% 243,229 $34.75
Q2 19,890,190 1,731,564 337,550 10.5% 108,358 $34.75
Q3 19,895,019 1,557,068 292,971 10.4% 51,837 $36.40
Q4 19,895,019 1,505,161 289,094 9.3% 225,615 $37.00
2007/Q1 20,968,597 1,703,435 202,698 9.0% (3,396) $37.60
Q2 20,968,597 1,654,847 268,598 9.1% (121,277) $43.24
Q3 20,968,597 1,381,444 181,956 9.2% (17,312) $45.15
Q4 20,968,597 1,252,588 177,665 7.5% 83,823 $48.30
2008/Q1 21,482,945* 1,294,006 131,722 6.6% 55,817 $48.30
Q2 21,482,945 1,430,829 153,364 7.4% (134,611) $48.30
Q3 21,482,945 1,525,829 477,404 9.3% (286,019) $45.30
1
Rates are quoted as Full Service
*
The Piers 1.5, 3, 5 were added to North Financial District Class A Q1 2008
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
BY THE NUMBERS
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
Historical Trends
Class A Quarter Total RSF Direct Vacant Sublet Vacant Vacancy Absorption Rental Rates
2004/Q3 19,687,636 2,353,253 755,277 15.8% 259,685 $29.20
Q4 20,081,418 2,382,289 804,855 15.9% (78,614) $30.30
2005/Q1 20,116,732 2,322,185 609,930 14.6% 254,244 $31.10
Q2 20,116,732 2,172,607 603,502 13.8% 217,661 $31.75
Q3 20,123,913 1,810,178 562,883 11.8% 112,402 $32.53
Q4 19,772,060 1,934,028 477,212 12.2% (38,490) $33.40
2006/Q1 20,159,493 1,328,836 358,395 8.4% 63,342 $33.40
Q2 19,086,992 1,354,408 325,959 8.8% 41,720 $35.70
Q3 19,094,438 1,271,296 257,646 8.0% (70,444) $36.00
Q4 19,094,438 1,038,200 262,045 6.8% 228,697 $37.10
2007/Q1 19,128,276 991,788 160,721 6.0% 252,536 $42.67
Q2 19,128,276 998,881 142,012 6.0% 13,586 $43.40
Q3 19,128,276 1,157,348 92,021 6.5% 114,922 $47.60
Q4 19,128,276 1,294,077 83,682 7.2% (128,390) $47.60
2008/Q1 19,612,763* 1,064,770 149,049 6.2% (32,660) $47.60
Q2 19,612,763 1,153,898 158,734 6.7% 37,426 $47.60
Q3 19,612,763 1,357,040 187,752 7.9% (73,457) $44.20
1
Rates are quoted as Full Service
*
345 Spear (Hills Plaza) was moved from SOMA to South Financial District Class “A” Q1 2008
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
BY THE NUMBERS
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
BY THE NUMBERS
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
BY THE NUMBERS
4.3% Class “A” vacancy for the Van Ness / Civic Center
submarket, making it one of the tightest markets to find
Class “A” space in San Francisco.
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
BY THE NUMBERS
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
THIRD QUARTER
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
In light of current economic conditions, the 185 Berry Street – 17,500 RSF of quality (where sublease availability has increased
SOMA market remained fairly strong creative space with waterfront views significantly) may continue to push rents
throughout the third quarter of 2008. 72 Townsend Street - 30,000 RSF lower.
Average asking rates held firm at $34.52 and creative full building lease opportunity
tenants absorbed 128,000 square feet of office with turn-key improvements
space. However, the re-introduction of at 370
Third Street added 390,000 square feet of Despite the strong performance of the SOMA
new supply to the market, resulting in market this quarter, concerns loom on the
262,000 square feet of negative net horizon. Significant pending leases are few
absorption and a modest increase in vacancy and far between. Venture capital funding,
to 19.87%. which is so vital to the growth of the
technology sector, is at its lowest level in
Core SOMA properties continue to recent memory. According to Dow Jones
command premium rents. For example, Slide VentureSource, the IPO’s and M&A’s of
leased 36,000 square feet at 301 Brannan in venture-backed companies generated just
the low $40’s Industrial Gross, and Coverity $4.57 billion this quarter, down 66% from the
relocated and expanded at China Basin to third quarter of 2007. Tempered demand and
26,000 square feet in the high $40’s per increased supply of office space, such as the
rentable square foot, fully serviced. However, 190,000 square feet of office space to be re-
asking rents in non-core properties continue introduced at 875 Howard Street next
to fall, as landlords react to softening demand quarter, may suppress rental rates in the near
for these properties and competition from future. It is anticipated that some companies
new sublease availabilities. For example, 539 will downsize and/or cease operations, adding
Bryant completed two leases in the low $30’s, sublease space to the market and further
and 642 Harrison is being marketed at that lowering asking rates on direct space.
same rate. Tenants who can afford to delay major lease
commitments may be well suited to do so.
Availability of high quality, creative, open-plan
space remains limited. Some of the more In conclusion, the SOMA office market has
desirable available spaces in the market remained relatively strong through the third
include: quarter, primarily due to the continued
strength of the technology sector. The
410 Townsend Street – up to 40,000 leasing market has seen robust activity and
RSF (in 10,000 RSF increments) of brick sustained rent levels, though a lack of access
& timber office space to capital has all but silenced the investments
500 Third Street – 8,000 RSF of bright, market, with no significant transactions
open, high-ceiling space with downtown occurring for the second consecutive quarter.
views General economic conditions will likely
139 Townsend Street – 11,000 RSF of temper demand across all sectors, while an
creative brick and timber, full floor space increasing supply of direct and sublease space
near the Ballpark in SOMA and in the central business district
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
* Excludes 500 Terry Francois & China Basin Landing addition; Rates are based on a weighted average for available space only
** 390,000 square feet at 370 Third Street were added to SOMA inventory Q3 2008
350 Rhode Island St. South 4 139,509 $38.00 34,841 0 34,841 25.0%
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
Top Leases
Tenant Lessor Square Feet Address
Pfizer, Inc. Alexandria Real Estate 105,000 455 Mission Bay Boulevard
Live Nation 251 Rhode Island, LLC 20,142 251 Rhode Island Street
Global IP Solutions 642 Harrison & Hawthorne, LLC 12,448 642 Harrison Street
Undisclosed Tenant Apollo Real Estate Advisors 8,300 444 De Haro Street
410 Townsend Street 2nd & 3rd 10,000 40,000 $34.00 Creative Brick & Timber with Parking. Nicely finished.
500 3rd Street Partial 5th 10,200 10,200 $35.00 Great lofty, open concrete ceiling space. Good City view.
139 Townsend Street 2nd 11,000 11,000 $40.00 Creative Brick & Timber full floor. Great location.
185 Berry Street 2nd 17,500 17,500 $45.00 Creative, high ceiling space with Bay views.
72 Townsend Street Ground 25,000 30,000 $38.00 Very creative full building. Landlord will turn-key improvements.
(E) = Expansion
(R) = Renewal
(S) = Sublease
(C) = Cornish & Carey Involvement
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SAN FRANCISCO SAN FRANCISCO OFFICE
THIRD QUARTER
AGENT ROSTER
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