News & Research Archive

New Office Development Growth in San Francisco?

Mar 06, 2006

 

 

The Mills Corporation’s plans for a sports and retail complex on Piers 27–31 in San Francisco appear to have ended with the announcement that it intends to sell its development rights to the Shorenstein Companies and New York’s Chelsea Piers.

 

The proposed plans create new office space rather than a large retail component. This is a significant statement by the Shorenstein Companies, a local powerhouse. During the past year, Shorenstein has sold off several trophy office buildings in the city, signaling that the bubble for office building prices may be popping. Yet, this new, purely speculative office development is based on the belief that the office market in San Francisco needs more inventory.

 

The San Francisco vacancy rate for office space currently stands at 12.9%—high for speculative development. Historically, a vacancy rate of lower than 9% creates interest in new office projects. However, the overall vacancy rate has dropped by more than 2% each year for the past several years. With construction taking at least two years from start to finish, that trend will bring office vacancies down to development levels in a couple of years.

 

The lowest vacancy rates occur in view spaces, where the vacancy currently is less than 3%. Assuming unrestricted water views, new office space at the piers should not only rent, but rent at premium prices necessary to support new construction.

 

If Chelsea Piers attempts to re-create its successful New York development as a San Francisco sports and entertainment center, this area could become its own marketplace, not unlike the Embarcadero. If Shorenstein announces it is bullish on office development, other developers will soon follow suit.

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Written by: Hans Hansson

E-mail: hans@starboardnet.com


Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 21 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email hans@starboardnet.com or call him at (415) 765-6897. You may also check out his website, http://www.commercialspacefinder.com/.

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