We Are At Or Near The Office Market Bottom But Will Bounce Along On The Bottom For Several More Years

I was recently asked by a business reporter if, with suburban Class A office buildings like 2300 Clayton in Concord, California selling for as low as $110 a square foot, are we at the bottom of the cycle? This particular office building is one of my favorite, and back in 1985 I brought the first tenant, Nationwide Insurance, who leased three entire floors at a full-service turn-key rental rate of $1.00/rsf per month. Underground parking, a multi-level parking garage across the street, exercise, and conference facilities, and located across the street from the Concord BART station. However, it was only half-leased, and with Concords significant vacancy rate and the high cost of tenant improvements it is not a slam-dunk even at this low price. Another recent example is 350 California Street in Downtown San Francisco. The 297,642 square foot Class A high-rise was valued in 2020 at $840/rsf, and just sold for $205/rsf!  My opinion is we may be at or near the bottom, but we will bump along the bottom for the next several years. There will be a lot more ‘bargain’ sales before the office market stabilizes. There will be some office conversion, some demolition, there may be a modest return to the office by major corporations, but until interest rates go back down, and until banks once again open their doors to office building financing, we have a long way to go.