San Francisco Office Buildings May Be Doing Worse Than Elsewhere In U.S.
I was on a conference call this morning with senior SIOR office members from all around the country and while their office markets are not faring well, no where does it appear to be in the deep hole that is prevalent today in San Francisco. With a 30% overall vacancy rate and major users still giving back blocks of office space there is no rainbow in sight. Wells Fargo reported is selling it’s 355,000 square foot downtown San Francisco office building at 550 California Street. The reported price or $120-130/rsf represents a 70-80% discount from the value just three years ago. There are other sales in process at similar 70-75% discount values. Why so low, you may ask. If the current rental rates are so low that after deducting the high cost of building services (PG&E, property taxes, main, sewer, water, garbage etc. etc) and the also high cost of tenant improvements needed to secure new tenancies, in a market where it may take 2-3 years or more to secure a new tenant, jettisoning a loss-leader and investing the proceeds in positive-return investments seems to make a lot of sense.