Market Insight Editorial & Advice to Tenants: 4Q2005

Editorial from Dan Mihalovich, Principal of Mihalovich Partners and Founder of The Space Place®

If you’re a commercial tenant in the San Francisco area, you’ve come to the right place, The Space Place. If you are a first-timer at our site, know that we are totally and unequivocally committed to serving and representing the tenant community—and that my Editorials are not only meant to be instructive; they are a written record of our market analyses and recommendations; and, from my perspective, an easy way for you to differentiate the quality of our thinking and strategy with those of our competitors.

As you’ll read below, demand for office space during 2005 and, more specifically, Q4, tracked at an astounding rate—record pace for San Francisco. Before we jump into the statistical fray, however, we begin with a broad-brush about the larger economy and fundamental issues which continue to concern us and dampen our enthusiasm. We prefer that you take pen in hand as you read this. Write to us.

Into the Fire: Tenants Bring on the Heat

The economic jobless “Recovery” may have been artificially stimulated by cheap interest rates, a sagging employment market, a cheap dollar and tax breaks for the wealthiest Americans—but the results are real, as front-page-news demand from tenants has rocked The City. Sure, there will be hell to eventually pay for Federal, Trade and a collection of other gargantuan deficits, but the star of the show is the immediacy and depth of growth across industries in the San Francisco Bay Area.

Q4 wrapped up another stunning session of net positive demand throughout the Bay Area. San Francisco posted nearly a MILLION square feet of absorption of office space in Q4, and more than 3.7 MILLION square feet for the year. Considering that a million square foot year represents very healthy demand in The City, the broad-based expansion of tenants really woke up the landlord community.

If you’re a tenant in this marketplace, you should be paying attention! Just how hot is it?!

  1. Developers are building, or planning to build new office buildings. With the cost of new construction at around $450 per square foot (growing at ~1%/month), landlords need a platinum lease to make a new office project fly. Ask Barclays Global, who had to pay mid-$50s rent to compel Equity Office Properties to build them a new building at 1st & Howard. This is demand in action. The market paid EOP to come out of the ground. Why? Barclays could not find a suitable alternative in built-buildings. Will the market pay Tishman Speyer to develop 555 Mission? Or the Shorensteins to develop their lots on Bush, Pine or along the waterfront (taking over for Mills)? How many tenants have the credit and budget to pay this level of rent?
  2. Unobstructed Bay-view space in highrises is trading in the $60+ range. These are Dot-com rates, back once again. An enterprising and opportunistic developer is building a boutique building right on the waterfront. Price of their view space? Over $90 per square foot per year. Even the upper floors of the Pyramid seem cheap in comparison, asking $75/sf/year. Keep in mind (and keep your cool) that most tenants shouldn’t spend more than 8-9% of gross revenues on rent. Do the math; few can afford these rates.
  3. We completed several deals in Q3 in Class A buildings, in the mid-$20s to low-$30s per square foot per year rent range, with large tenant improvement contributions from the landlord ($45-$55 per square foot). Landlords are now asking ~$5-$10/sf/year higher rent…just a few months later. Landlord-hope springs eternal. We don’t believe there to be insatiable demand at new pricing levels, BUT there are plenty of brokers in the community who simply want to ring the cash register—close the deal and move on to the next tenant. It’s no wonder that mid-$30s lowrise/midrise “comps” are popping up around the CBD.
  4. Does size matter? Yes. In a tightening market, landlords begin to “protect” their full floors—especially view floors—holding them for full floor users, to avoid additional transaction and marketing costs; common area improvement costs; and incremental legal fees. Since the market is rising, why not just wait for the right sized tenant? Or…offer to break the floor and extract a substantial premium from smaller tenants.
  5. Many building owners have been “warehousing” space, whether voluntarily or not. On average, spaces just leased around town have been on the market for 19.3 months! As long as the market is rising (so many a landlord believes), why not speculate further that any additional downtime will be more than offset by higher rental rates down the road? If this sounds speculative, it is. But what do you call paying nearly $300/square foot for an old historic landmark building? Or nearly $600/sf for the Bank of America Building? This is an attitudinal adjustment within the landlord and landlord-broker community—that rents today will simply be higher down the road. The herd has checked in on this topic. Tenants: You will either maneuver through the herd to explore and find the most compelling opportunities out there, which meet your requirements, or you’ll get stomped. We deal with bulls every day and know how to ride.
  6. In the landlord community, it’s all about money, ROE, IRRs, etc. unfortunately. For those of you running non-profit organizations, we empathize with your concerns and relish the opportunity to assist you. 99% of the landlord community, however, will turn a deaf ear to your budget constraints. Why should they bother? The market’s too hot.

While Rome is Burning

How shall we spell “OVERHEATED”? While we are impressed with the resilience, fortitude and tenacity of the tenant community in San Francisco, we remain concerned about a number of fundamental underpinnings of the economy. It’s difficult to ignore this list, readers, yet our impression is that businesses throughout the Bay Area are doing just that. To our point of view, office demand has hardly noticed the potential impact of the following elements:

  • The financial impact on the economy of the War on Terror ($6-7 billion/month, plus untold losses)
  • Iran’s nuclear program
  • Soaring oil prices
  • California’s sagging bond rating. Currently scraping the bottom rung of all States, at $54 billion in debt versus five years ago at $26 billion.
  • U.S. Consumer is out of steam…and money. Q4 spending was the worst in three years. If there wasn’t a “steal”, consumers wouldn’t buy. Freddie Mac reported that in 2005, consumers sucked $204 billion from their homes. Chief Economist of the National Retail Federation stated “the housing market is topping out, and the savings rate is negative right now, so there aren’t a lot of places for consumers to find extra spending money…and will have to rely on income.” Watch for Recession in 2006 if consumers don’t carry 2/3 of the GDP. Consumer-sentiment, measured by the University of Michigan, clocked in at 91.5 in December—hardly a blip above the 28-year average of 88 points.
  • American savings rate—less than zero. This is BIG, folks. Federal Reserve Bank’s economist, Kevin Lansing, reported that this negative savings rate would be “the first such occurrence since the Great Depression.”
  • P/E Ratios “mountainously beyond normal”, according to “Irrational Exuberance” author and Yale professor Robert Shiller. Shiller’s book called the peak of the market in 2000, which has been updated to confirm that P/E ratios are still whacked. Traders beware: Shiller doesn’t focus on P/E with only 12 months hindsight; he uses a 10-year earnings average—and calculates that the trailing P/E for the S&P is around 25, versus the long-term average of 15. Just when you were beginning to like the 11,000 Dow…
  • The S&P, a better measure of the economy than the Dow, remains ~17% below its all-time high in 2000.
  • Gold, a “security” when times are tough, is trading at a 26-year high.
  • The Federal Deficit. Bush projected $423 billion for 2006, up $100 billion over FY 2005…NOT including additional funding requests for the War on Terror. We borrow $60 BILLION per month from China to pay the interest on our debt.
  • The Trade Deficit (expected to be ~$900 billion in 2006.)
  • The Pension Benefit Guaranty Deficit. $23 billion. Pension Benefit provides insurance for employer-paid pension plans. They say that defaults could top $108 billion this year. These are the folks who sucked up $9.6 billion of employee pension liabilities when United and US Airways went belly…begging the question: Should the commercial real estate industry fire up an account? If 103 million square feet of tenants in San Francisco get hammered with soaring rents—and can’t pay—why not pass the “deficit” from landlords to the Feds? If the Feds guarantee pensions, shouldn’t they guarantee profits?
  • Rising real estate taxes due on reassessment of recently purchased buildings
  • Soaring health-care-coverage costs. 40 million Americans carry no insurance.
  • Rising interest rates
  • Sagging job market (Job gains only averaged 174,000/month during 2005. Recall that we were told that something greater than 225,000-250,000 job gains/month indicated a “healthy economy”.)
  • Soaring construction costs (Construction costs, mainly from materials, are increasing at a rate of nearly 1%/month. Tenant improvement buildout costs have skyrocketed to $75-$100/square foot for “normal” finishes for CBD professional services space. If landlords will only provide $35-$50/square foot toward the initial improvements, then tenants face having to finance huge amounts over the lease term. At 6% interest over a 7-year lease, for example, a tenant will incur an additional cost of nearly $4.50/square foot/year of the lease to finance a $25/square foot shortfall.

Ethics in Brokerage: Where is Eliot Spitzer?

It’s not just time to level the playing field, it’s time to DEFINE the playing field. Most office leasing brokers never give you the straight scoop.

Pity the unsuspecting CEO, CFO, COO, Managing Partner, HR Director or Office Manager trying to get some work done. Office leasing brokers relentlessly telephone, spam, drop in, self-promote, puff, hoot n’ holler—anything to get your attention, to get to “the pitch”. After all, they are on a mission. If they are a “landlord broker”, they call on you to lease space in one of their company’s listings. If they profess to be a “tenant broker”, they want to represent you. Simple, isn’t it? Factually, no.

If you’re not prepared for an insider’s explanation, this would be a good time to go back to your Business Times or Fortune magazine. Otherwise, after surviving (and thriving on) as an office leasing broker in San Francisco since 1982, I’d like to share some insights with you and help you decipher the often cryptic and misleading messages you’ve been receiving from the brokerage community.

Living Up to Standards we Expect from Lawyers

Why do you hold your lawyer to a higher standard of ethics than your office leasing broker? Why? When you retain counsel, before they take your case or the first dollar, THEY make a thorough self-determination as to whether or not they have a conflict of interest representing you—and THEY disclose it to YOU. Your lawyer cannot ethically take on a case which would place them—or you—in a compromised, conflicted predicament. In the office leasing industry, this litmus test is rarely utilized by either broker or tenant. The phenomenon is baffling, considering the magnitude of importance and financial commitment level at stake as tenants enter into leases.

The State Bar maintains a stringent set of rules governing the activities of lawyers. Can you imagine that an office leasing broker could uphold the following rules of marketing:

Advertising and Solicitation (Rule 100 - for Lawyers):

A communication or a solicitation (as defined herein) shall not:

  1. Contain any untrue statement; or
  2. Contain any matter, or present or arrange any matter in a manner or format which is false, deceptive, or which tends to confuse, deceive, or mislead the public; or
  3. Omit to state any fact necessary to make the statements made, in the light of circumstances under which they are made, not misleading to the public; or
  4. Fail to indicate clearly, expressly, or by context, that it is a communication or solicitation, as the case may be; or
  5. Be transmitted in any manner which involves intrusion, coercion, duress, compulsion, intimidation, threats, or vexatious or harassing conduct.
  6. State that a member is a “certified specialist” unless the member holds a current certificate as a specialist issued by the Board of Legal Specialization, or any other entity accredited by the State Bar to designate specialists pursuant to standards adopted by the Board of Governors, and states the complete name of the entity which granted certification.

When a Broker Calls

In the San Francisco marketplace, there reside approximately 300 office leasing brokers. This community of brokers comprise, in largest part, a body of brokers who represent 110 million square feet of office inventory…these are “Landlord Brokers” (whom, as you’ll read below, also profess to be Tenant Brokers). The balance of the brokerage community represent tenants, only…these are called “Tenant Brokers”. This still sounds simple, but it’s not. Why not?

The central issue of concern for a tenant should be to surround itself with outside, completely objective advisors--whether they are a real estate broker, architect, contractor, or real estate lawyer. The commercial real estate industry does not compel itself to disclose to unsuspecting “buyers”—tenants—that they work for a company rife with conflict. For example:

  • A broker calls you to inquire about your lease expiration date and the size of your tenancy (because they represent a building owner and want to expose you to their listing). That broker is a Landlord Broker, are they not? Why, then, do they pursue a line of questioning to inquire about representing your company…as a Tenant Broker? Are they not under contract with that building owner, as their agent, charged with the responsibility to procure tenants for that listing? Did they not pledge their time and expertise to that building owner? How can that broker objectively represent your interests, as a tenant?

  • Another broker from the same [Landlord Broker] company calls to introduce their Tenant Broker services, since the caller genuinely only represents tenants. Is there not a conflict? When one (or all) of their company’s landlord-clients signed them on to list their space, didn’t the company commit that they would commit all of their company’s resources—including all of their experienced brokers—to bring business to that landlord? Isn’t it in the best interests of the caller’s company to bring tenants to the caller’s listings? If not, shouldn’t you ask “why not?” If you engage that “tenant broker” and you commence negotiations at a listing managed by the caller’s company, how is it possible that the caller could drive as hard a bargain for you as an equally skilled Tenant Broker from a non-conflicted commercial real estate firm?

    When negotiations get rough, and your caller—now representing you—goes a bit “too far” pressing for concessions for you…isn’t it likely that the caller’s Senior Management will bring him/her into a meeting to defend their other client—the landlord—the party who engaged the caller’s firm…Why were you subjected to this mess?

    In this case, the Tenant Broker’s exuberance to gain concessions for the tenant could cause the broker’s company to lose the listing for the building - or jeopardize the company’s chances to secure a new listing. Landlord Brokers are constantly on the hunt for new listings; they can ill afford to employ Tenant Brokers who push their landlord clients very far.

  • A Tenant Broker calls, highly skilled and impressive as ever. They impress you with the notion that their firm represents more tenants than any other in the City. In fact, so they say, their firm “controls” 30% of the tenants currently in the market for space. They should have better knowledge of where deals can be struck, shouldn’t they? Perhaps, but they may also be privy to (a) information about your industry-specific competitors and potentially share information about you—without disclosing this to you; (b) information about several other clients whose requirements are remarkably similar to yours, meaning that you will literally compete against the Tenant Broker’s other clients for the same space—without disclosing this to you; and (c) credit reports on all of their clients, placing them in the unenviable position of having to recommend that a landlord sign a lease with another client instead of with you.

    Shouldn’t Tenant Brokers voluntarily disclose whether or not they represent one of your competitors—and agree not to pursue your competitors unless you [reasonably] agree?

    Shouldn’t Tenant Brokers disclose how much business they are engaged to close, and where your requirement fits into their list of priorities? Isn’t it a conflict of interest if that seasoned caller really doesn’t have the time to give your project what it deserves, but instead plans to shuffle you off to a junior partner, or simply do a half-assed job because they can get away with it? After all, a huge fee is at stake!

    If a Tenant Broker has a large tenant client who decides to jettison a huge amount of space on a sublease basis—couldn’t that Tenant Broker find himself/herself in a conflict [just like a Landlord Broker] when you decide to pursue your tenancy in that sublease space? Shouldn’t the Tenant Broker disclose that possibility?

  • Each quarter, we present a report about the small handful of Landlord Brokers whom collectively control about 60% of the City’s vacant space. Strange as it may seem, as Tenant Brokers, we find ourselves competing most often with these firms to represent you—tenants! If all brokers were equally qualified to advocate for your interests, by definition, Landlord Brokers could not possibly command and as aggressively assert your objectives as Tenant Brokers. We believe this is clear. But the Industry will not do your homework for you. The Industry continues to cloud the most basic of questions about conflict of interest. The Industry does not operate at the same ethical level of the legal industry. Why not? Who is minding the hen house? It looks to be the wolves. Buyer, beware.

On Brokers Resumes…

Every day, it seems, we can pick up the newspaper and learn that one of our politicians, school district administrators or the head of a corporation somewhere falsified information on their resume—somehow inflating or distorting the truth. When your lawyer or dentist or surgeon passes you a resume, though, you don’t question it—do you? You hold those professionals to a higher standard than you do for, say, your real estate broker. Why?

When you interview a Landlord Broker or Tenant Broker to represent your interests (again, we must ask, why would you consider having a Landlord Broker represent you, a tenant?), 99% of the time you’ll be presented with an extensive and impressive list of companies represented by the broker’s entire company. Isn’t this dishonest? After all, are you not trying to assess the viability and experience of the very people standing in front of you pitching your business? Shouldn’t the brokers disclose (a) which assignments did they work on? (b) what, exactly, was their role on each assignment? (c) were they simply in the room at the time the transaction was negotiated by a more senior broker from their company? (d) Most disconcerting—that brokers frequently list the names of tenants on their resumes, recalling transactions in which the broker represented the landlord in the transaction!

References are seldom checked. You’ll feel much more comfortable with your decision-making thereafter. There’s a LOT of money and liability at stake in negotiating your office lease. You have one opportunity to do it right. Ask the right questions and know what you’re buying in to. The commercial real estate industry won’t make it easy for you.

Just for Laughs…

This is a real letter, a “whopper”, one of our competitor’s broker-solicitation messages sent to one of our clients. Bear in mind that this solicitation comes from a Tenant Broker “specialist” working for a Landlord Broker company. To make our point(s), we’ve deciphered the message and provided the translation [inside their message]. See if you can follow along (we’ve changed the names to protect the guilty parties). Here is the text of the broker’s letter:

“We thought it was too early to think about our lease. Within three months [from when?], Tenant Broker [Landlord Broker, actually] negotiated $731,240 worth of rent savings [how they calculated “savings”, though, is a complete mystery. This is totally misleading.] over the last 18 months of our existing lease term [but we didn’t say that we’re a 100,000 square foot tenant and they didn’t really save us that much, on a per square foot basis]. And Tenant Broker [Landlord Broker, actually] secured $426,680 in Landlord-funded tenant improvements!” [Who made this statement? No one’s name is associated with the quote.]

Mr. Tenant:

Our records show that your firm’s office lease on xxx,000 square feet on ABC Street expires in the next few years. I’m hoping to visit with you regarding this lease expiration. You now have an opportunity in San Francisco to:

  • Improve profitability by minimizing occupancy costs [this suggestion is inconsistent with the broker’s later assertion that market rates are rising at nearly 20% per year, but the thought is appreciated.]
  • Increase efficiencies & effectiveness of revenue-generating staff
  • Enhance recruitment & retention of key partners

This is a no cost proposition--landlords pay our fee. [The fact that landlords pay broker fees obviously does NOT mean there is no cost. The broker, here, is attempting to lure a client into believing that there is no risk in hiring his/her services. Clearly, there IS risk, especially if this is not the most capable, experienced and objective broker available to represent the tenant. The broker is also misleading the tenant into a belief that the broker’s fees are “free” to the tenant. Landlords only agree to pay tenant-broker fees because such payment is included as an amortized expense in the resulting lease. It is true that, as a rule, landlords budget to pay tenant-brokers’ fees—but for this solicitous broker to imply that there is no cost is inaccurate and misleading.] By way of background, we’ve been hired as the trusted real estate advisor to respected tenants such as A, B, C, D, E, F, and G [none of which the soliciting broker represented; all of which were represented by other brokers working at the Landlord Broker company].

Whether you’d prefer to stay in your current location or relocate, it is always beneficial for tenants to stimulate competition by negotiating simultaneously with more than one landlord. As tenant advisors [actually, our company is one of the largest Landlord Broker companies in the City and we control more listings than any single landlord in town], we can provide you with the insider market information [perhaps this is code language, to suggest that this broker can source secret information that no one else could possibly provide] you need to make the best possible real estate decision.

Given your upcoming lease expiration, now is the best time to take advantage of the tenant-favorable office leasing market—before this window of opportunity closes. The office leasing market in San Francisco is changing quickly—rents are rising at almost 20% annually! [This claim is factually incorrect and misleading, but if the broker’s letter stimulates fear in the reader and elicits a return call, the broker figures that it’s worth a try.]

I would like to discuss how we might help you secure your next lease, and as a result increase your profitability over the next several years. [It is implied, if not subtly promised, that if you hire this broker, your business will run more profitably—even though “rents are rising at almost 20% annually!”]

Tenants: Get it Straight

Mihalovich Partners represents tenants, only. Our core business is driven toward educating and objectively and aggressively representing tenants, only. If you are looking for biased market information serving the landlord community, please see one of Cushman & Wakefield; The CAC Group; Colliers; CB Richard Ellis; Grubb & Ellis; or Cornish & Carey—whom collectively represent over 53% of the 13.4 million square feet of space currently on the market. Those six firms have pledged their allegiance to over 225 local landlords.

Strange as it may seem, bearing in mind their conflicts of interest, we compete with them every day for YOUR business--for the opportunity to represent you, the tenant, in leasing negotiations. C&W, CAC, Colliers, CB, G&E and C&C control more space than any landlord in San Francisco. Mihalovich Partners’ business and approach is diametrically opposed to that of brokers who represent landlords. Are you, the tenant, looking for advice and counsel? You can count on straight talk from us. Advice for tenants, pure and simple. Serving the tenant community in San Francisco for 24 years.

Dan Mihalovich (
Principal of Mihalovich Partners and Founder of The Space Place®

San Francisco Market Overview

Demand Soars. Trouble in Paradise

Tenants in San Francisco went ape for space in the 4th Quarter of 2005, posting nearly one million square feet of positive absorption of space. So, too, did tenants throughout Silicon Valley (1.1 million square feet) and in East Bay Counties (854,000 square feet). Only San Mateo County was flat. Total vacancies in San Francisco now weigh in at 12%, an impressive 25% below rates just a year ago. That said, 12.7 million square feet remain on the market in the City; nearly 43 million square feet all Bay counties.

The pace of absorption in Q4 dropped off 29% below Q3, but—tenants, listen—the “damage” is done, so to speak. The tenant community has stood up and taken down virtually all of the massive overload left behind after the dot-bomb. After an impressive 2.14 million square foot absorption rate in 2004, San Francisco tenants gulped down a rocking 3.73 million square feet of net positive absorption in 2005. Tenants are making believers of all of those pension funds, REITs, insurance companies and raw speculators paying obscene prices for highrise properties.

Average asking rental rates for direct space (space from the landlord, not from sublessors) popped 5.1% since Q3 in the City; up a whopping 15.2% since Q1. Tenant demand has flamed the fire in the belly of many a building owner—unfortunately to the point that an opportunistic landlord will, for example, seal one deal for space at $26 or $27/sf/year, and quickly raise asking rates to low-$30s for the balance of their available space. Is the demand there to pay the premium, all of a sudden? Should tenants be paying up to make these deals, or are they (and their tenant brokers) working hard and smart enough to find more economical options? In spite of the heightened level of activity and demand, in San Francisco there remain over 300 options for 5-10,000 square foot users; over 200 options for tenants of 10-20,000 square feet; and over 50 options for tenants of 20-30,000 square feet. See our chart, below, more for details.

Before getting too sweaty over an overheated market, one might ponder why it is that, on average, space just leased has been sitting on the market for over 19 months in San Francisco; 20.6 months in Silicon Valley; 22.9 months in San Mateo County; 19.3 months in East Bay Counties; and 20.6 months in Oakland. As the markets have been tightening, more and more building owners are delaying making deals “early”—those 2007 leases due to expire. This attitude could actually bring a chill to the markets near-term, provided that tenants are patient and don’t force themselves on landlords. Fighting the market is always guaranteed to displease. With the underlying issues facing our economy in mind (see “While Rome is Burning”, above), a slowing of deal flow in the City will benefit the tenant community.

Missing the Train. Are You TOO LATE?

One of the many advantages to have worked in this marketplace as a tenant rep broker for 24 years…is perspective. We’ve been reminding tenants since the dot-bomb that Class A rents in the City at $22-$32 per square foot per year were far cheaper (especially in real terms) than when our Founder started in the business in 1982. Rates have definitely been on the rise—as they should, since we’ve witnessed a broad-based expansion in the tenant community and, eventually, the markets will price themselves to the point of turning demand away (sending tenants off to the burbs or to otherwise curb tenants’ appetites). Are you too late, tenants? Of course not. Have you missed the market? Perhaps you’ve missed the trough, but the real question is whether or not you’ve missed locking in an affordable lease—one which allows all other aspects of the life of your business to continue to flourish. Rule of thumb for tenants, tried and tested over decades: Keep rent at 8-9% of total gross revenues (or less, of course).

The gross revenue ratio doesn’t address capital costs of the transaction. Few components of deal-making have remained safe from inflation (the Government’s calcs don’t help you at all, to prepare for the shock of financing office space construction). We assist our clients in mapping out a total occupancy cost budget—with detailed input from the tenant-Team architect and contractor. You should call us to discuss this service.

In the unlikely event that the markets rage on and rents force tenants into the 12-16+% range (percentage of gross rev going to rent), what alternatives should one consider to reduce leasehold liability? Here are a few ideas worth considering—which we’d love to discuss with you further:

  • Begin a telecommuting program. VPN and other high-speed connections make it inexpensive and easy to set up employees to work at home—or at a satellite location away from the expensive financial district.
  • Pay closer attention to man-hours in the office. If possible, create a “hoteling”, or hot-desking, program to rotate two or more employees through the same work space.
  • Take a fresh look at the layout design of your office. If you inherited most of the improvements from a previous user, or built it out custom several years ago—chances are that a skilled space planner can design new efficiencies taking into account the ways in which your business, equipment and paper flow have evolved. Can you “expand” into your existing square footage?
  • Bringing more “democracy” into the workplace is a good way to create more space for more people. Perhaps employees will communicate more effectively if they spend less time in a private office. Allowing for “Live Meetings” online could free up conference room space to allow for more efficient use of those “common” areas. The rent savings from reduced square footage may contribute heavily to your technology budget!
  • Move. Sometimes the smartest thing to do is “re-pot” the company. Pull out the whiteboard and start planning fresh. All new ideas, unimpeded by the existing infrastructure. With the goal of reducing square footage, be mindful of creating a “win” for everyone involved in the move. Lighter and brighter space for those in interior areas? New workstations? More pleasant outlooks? Exciting break areas? Better office and building amenities? Paid parking? An in-building gym membership? Rent savings may potentially pay for it all, and then some.

Be creative. We have lots of ideas for you.

Vacancy Rates: Are Your Options Fading?

Landlords, their listing brokers and developers dance to the tune of lower vacancy rates, so tenants should watch carefully to detect how and to what extent your field of options declines. In the City, Q4 vacancy rates decreased by 20% (!). Discussing vacancy and absorption rates can be confusing to some. What language makes sense to tenants? Tenants ask, “Tell me about my specific options. How many choices do I have?” Are your options fading, as a result of recent leasing activity? Review the chart, below, and let’s discuss:

Please note: We provide Bay Area market data and analyses for the current year only. To request commercial real estate market data for previous quarters, please contact us.

You can request a free space survey, containing all direct and sublease space meeting your specific requirements. We can also provide building photographs, floor plans, leasing histories and more. You’ll receive your survey within one business day. To discuss your space needs in person, call 415-434-2820 or email

Take Me Straight to the Numbers: San Francisco Bay Area Rental Rates. Supply/Demand.

Please note: We provide Bay Area market data and analyses for the current year only. To request commercial real estate market data for previous quarters, please contact us.

Who Has the Most Space in San Francisco? Surprise…

When we approach a prospective new tenant client, we tell them that we NEVER represent landlords, always avoiding this conflict of interest. So, which of our competitors--leasing firms--do the most landlord representation, and who controls the most space in San Francisco? And, most importantly, why would you feel comfortable having them represent YOU?

Below we’ve surveyed the entire 103 million square foot inventory of San Francisco, and illustrated the companies with the most control of space on the market, the Top 25. You know from our other stats that 13.4 million square feet is now on the market in San Francisco. The top 6 companies, all office leasing brokerage firms, control over 53% of the City’s vacancy! These brokerage firms are beholden to more than 225 local landlords. Since their allegiance is committed to so many landlords, how can they possibly represent YOUR interests--the tenant’s interests--objectively and aggressively? The top 4 companies on the list control more of the City’s vacancy than Equity Office Properties, the country’s largest REIT (#5); Boston Properties (#6); Hines (#7); and more than Shorenstein (#16). Surprised, are you not?

% Market Share Square Feet # of Landlords/ Buildings

% refers to the percentage of vacant space under exclusive listing by each company. The accompanying figure is the actual square footage available for lease. We have also noted the number of landlords/buildings represented by each entity.

* denotes listing brokers. All other companies listed are landlordselopers.

1 *Cushman & Wakefield of California 13.00% 2,285,252 57
2 *The CAC Group 11.10% 1,951,931 39
3 *Colliers International 7.00% 1,228,869 88
4 *CB Richard Ellis 6.40% 1,117,888 39
5 Equity Office 4.80% 840,214 12
6 Boston Properties 4.80% 837,161 6
7 Hines 4.30% 761,750 8
8 *Grubb & Ellis 4.30% 748,338 58
9 Tishman Speyer Properties 4.20% 743,110 3
10 *Jones Lang LaSalle Americas, Inc. 3.20% 557,437 6
11 *Cornish & Carey Commercial - ONCOR International 2.80% 496,366 10
12 *BT Commercial Real Estate—NAI 2.70% 479,795 33
13 Research in Progress 2.20% 389,542 6
14 *Starboard TCN Worldwide Real Estate 2.20% 378,770 96
15 *HC&M Commercial Properties, Inc. 2.00% 355,897 188
16 Shorenstein Realty Services, LLC 1.90% 341,307 5
17 *GVA Whitney Cressman 1.90% 338,713 43
18 *TRI Commercial/CORFAC International 1.60% 284,198 41
19 The Gap, Inc. 1.60% 283,000 1
20 *Newmark Pacific, Inc. 1.00% 179,754 18
21 *Studley 0.90% 158,743 11
22 The Presidio Trust 0.90% 157,485 39
23 *Arroyo & Coates 0.80% 139,456 13
24 *Ritchie Commercial 0.80% 132,182 47
25 *Coldwell Banker Walker Pacific 0.70% 127,302 62
  All Others 13.00% 2,280,718  
  Total 17,595,178

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