The Office Market Will Get Uglier Before It Regains It’s Beauty

Headlines in today’s THEREGISTRY, Columbia Property Trust Defaults on $1.7B in Mortgage Notes on Buildings in San Francisco, Across The Country. The portfolio of seven buildings includes 650 California St. and 201 California St., both in San Francisco, as well as buildings in New York City, Boston and New Jersey.  The San Francisco office market, with a reported 28% vacancy, is still expecting more vacant space to add to this. It has the lowest percentages of employees coming back to the office in the U.S., and the cost of tenant improvements if you do locate a replacement office prospect can be $100-200/rsf.  Buildings that were purchased prior to 2019 were routinely seeing $600-900 per square foot and now are being valued at $350-500 per square foot.  The silver lining is buyers with cash and the correct timing will make money, but timing is critical. I remember in our early 1990’s office downturn where buyers purchased foreclosed properties at distress pricing, only to lose the building in a second foreclosure when the market sank even further. Jeff.Weil@Colliers.com