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

If you're in search of intelligent life in the brokerage community…please enjoy this Editorial with my compliments. And, here are the last 10 years of pearls of wisdom:

655 Montgomery Street, Suite 1490
San Francisco, CA 94111
Office: 415-434-2820
Cell: 415-999-9244
Twitter: @MihalovichCRE
Skype: danmihalovich
License # 01376000

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The Trends Begin. San Francisco Leads the Way to Declining Leasing Activity, Fewer Deals, Higher Vacancies. Yes, Markets Work.

San Francisco:

  • Leasing activity DECLINED for 6 straight quarters.
  • There were FEWER DEALS CLOSED in Q4 than in the past 28 quarters.
  • Q4 net absorption of space popped up into positive territory, but only 198k sf…and this after three quarters of consecutively declining performances earlier in 2015.
  • We now have 3 consecutive quarters of rising vacancies.
  • 500,000 sf came on the market, just in past 30 days.
  • 11.5 million square feet remain on the market.
  • Nearly 2 million sf of this total is sublease space = 17%.
  • Nearly 3.3 million square feet is under construction = 29% of what’s on the market now.
  • On average, space now available sat idle for nearly 7 months.

San Mateo County:

  • Leasing activity DECLINED for 5 straight quarters.
  • There were FEWER DEALS CLOSED in Q4 than in the past 28 quarters.
  • 5.7 million square feet remain on the market.
  • 900,000 sf of this total is sublease space = 15%.
  • Nearly 2 million square feet is under construction = 35% of what’s on the market now.
  • On average, space now available sat idle for nearly 11 months.

East Bay Counties (Alameda and Contra Costa):

  • Leasing activity DECLINED for 3 straight quarters; and…
  • The number of DEALS CLOSED in Q4 were on par with Q3, but significantly FEWER than in Q1 and Q2; however….
  • Total available space continued to decline, for the 9th straight quarter.
  • Nearly 12 million square feet remain on the market.
  • 900,000 sf of this total is sublease space = 8%.
  • Only 225,000 square feet is under construction = 2% of what’s on the market now.
  • On average, space now available sat idle for nearly 17 months.
  • Oakland, specifically, has tightened significantly. Vacancy is now half of what it was a year prior.

Tenants are a creative bunch and have SO MANY options. The market is literally paying tenants to implement those options as we speak. Call us to meet and exchange ideas


Words you’ll never hear from Wall Street. Or from commercial real estate brokerage firms. As we stare out to 2016 and the very rocky start it was, “Peak Oil” comes to mind while contemplating our crystal ball. It was Goldman Sachs who years ago cited “Peak Oil” as the market phenomenon which brought us $100/barrel oil. Their pronouncement was that the world would never again know greater supplies of oil than were then available – relative to an ever-growing global consumer base. And so, it was goodbye to “cheap” $100/barrel oil….forever. Yet here we are, ladies and gentlemen, at $30/barrel oil. Never say “never”, when it comes to market forces.

Could the Bay Area’s office markets collapse under its own weight of over-amped, hyper-valuated, VC-backed tech companies? Some analysts suggest that we put every Series A company on a “watch list”. While our national economy has chugged along well enough – with all due respect, fabricated in large part by printing billions of dollars every month for what seems like a generation – there are seriously troubling signs everywhere else we look, let alone China whose empirical accounting is an oxy-moron. We shall see.

Here in Camelot, office leasing brokers and our clients barely have time to think, contemplate, talk or make proper decisions. A lot of mistakes are born out of this environment. We see trainwrecks of deals every day, especially when tenants align themselves with heavily conflicted landlord-brokers and/or those who are simply not organized and experienced to lead a complex process and implement a well-thought out strategy. Most notably, brokers leaving out critically important Team members like architects, contractors and real estate lawyers….should probably be retired from the trade.

“Affordability” around here, something tenants last saw in 2007, is for the rich, for the moment. But the trends are clearly changing and we believe it is now common perception throughout the landlord and brokerage community, that the height of the office market is behind us and more sensible and balanced scenarios lie ahead.

How quickly can the office markets change? Obviously it depends on whom you ask. Nearly overnight, we suppose. The price of oil fell flat out. And you didn’t see that coming. For those of you who’ve seen “The Big Short”, you’re reminded that the trillions of dollars of opaque trading that led to that crash – remains opaque to this day. Goldman Sachs, which only now was forced to pay a $5 BILLION fine for its transgressions during ’05-’07, became a bank (as did others) to shield themselves from disaster. Is our economy any more secure today than it was back then?

We’re used to “the herd” mentality in CRE, of course. Hats off (once again) to Sam Zell – for his market-timing turning over an entire portfolio recently. To be nimble and prepared especially during times of trouble, that would be optimal. Who in the marketplace is best suited to do so? That’s easy: Tenants.

Mihalovich Partners exists to advocate for and represent tenants, only. We understand, appreciate and navigate through challenging markets. And, we’re using the smartest new technology to help us manage our client-Teams and the transaction process – our industry’s first online transaction platform called griddig. Call us to get together. And check out


Tenants – Here’s Round 2 in this discussion. Tech, clearly the driving demand factor in office markets around the country, gets its lifeblood from venture capital. So, where are we in the VC cycle NOW? If the flow of VC slows, crawls or evaporates, will the office markets collapse --- and if such a scenario is even likely in the foreseeable future, WHEN might this occur? Do you want to be “long” tech, or “short” it? We asked for an update (from last quarter) from a local brainbox – a venture capitalist whose tenured company has more than $1B invested in public and private tech. We agreed not to disclose the VC’s name, but here’s a direct quote:

“It has been a tumultuous few months since we last checked in, given developments in China and commodity markets and a resulting bear market. For now, jobs, housing, consumer health, and bank lending all look ok-to-strong. Obvious risks to watch include global deflationary pressure, China balance sheet contraction, and energy contagion. I will let a macro guy fill you in on these issues and instead focus on what we are seeing in the tech world. As I noted in my last write-up, if we go into a recession we will all have larger issues…

Clearly, the IPO pipeline has halted. We saw one tech IPO in December (Disclaimer: IPO data is for my firm’s investable universe- generally mid to large cap US based tech companies), and currently only have two companies in the imminent pipeline (NTNX, and SCWX). 54% of the 26 IPOs we evaluated are now trading below their issue price. 85% of these IPOs are trading below where they closed on their first day of trading.

Notably, several IPOs priced below the post on their latest VC rounds or have traded down there after coming public (VCs are often at least partially protected from IPO down rounds with ratchets). For example SQ, PSTG,  BOX, and ETSY are all trading below their late stage venture valuations.

Perhaps consequentially, we have seen numerous examples of VC investors being less willing to chase high late stage valuations. We have also seen non-traditional venture investors (i.e. Fidelity) pull back. I believe this will continue and we will see some more rational thinking injected into the private markets, especially if tumult continues in the public markets (which seems likely). Later stage start-ups may need to dial back burn rates a bit and focus on proving out the unit economics of their businesses.

Somewhat counter intuitively, we will also likely see the pace of IPOs pick up. I would not be surprised by more IPO down rounds. VC backed companies need cash and their investors need liquidity.  Founders and early investors typically do fine through an IPO down round; it is the late stage investors and later employees who will get hurt.

It is important not to overly generalize when discussing the tech outlook. Of these IPOs there will be both good long and short opportunities, depending on price and fundamentals. Within tech in general we are beginning to see numerous opportunities to buy quality franchises at reasonable valuations (for long term minded investors), and other areas where overly optimistic estimates and potential for multiple contraction paint a less rosy picture.

While I remain cautious on the 2016 macro picture, I think good companies will have the opportunity to do ok and bad companies will get killed in an unforgiving tape. We will see bifurcation in performance as volatility returns to the markets.”

4Q 2015 Top Leasing Transactions

Tenant Address Sq Ft
Unity Technologies 26 Third St 57,666
Collective Health 85 Bluxome 52,999
Under Armour 135 Townsend 51,895
-- Two Embarcadero Center 51,506
Regus One Market Plaza 43,194

Tenant Address Sq Ft
NGM Pharma 333 Oyster Point Blvd 121,760
Ultrageny Pharma 5000 Marina Blvd 63,000
-- 900 Middlefield Ave 27,003
Poshman 101 Redwood Shores Pkwy 26,189
Fluidigm 7000 Shoreline Ct 24,039

EAST BAY COUNTIES (Alameda/Contra Costa)
Tenant Address Sq Ft
Workday 6200 Stoneridge Mall Rd 78,529
-- 5065 Deer Valley Rd, Antioch 54,276
Union Bank 1221 Broadway, Oakland 37,122
Aduro Biotech 740 Heinz Ave, Berkeley 54,401
Kaiser 1 Kaiser Plaza 28,419

If Your Lease Will Expire Within The Next Three Years…

or if there is another compelling reason to discuss your firm's office leasing situation, please call us. For qualified tenants, we offer the following pre-contract services:

  • Free preliminary office lease and operating expense review;
  • Free consultation to discuss project management, Team formation and project schedule;
  • Market surveys and our specific tenant-driven leasing recommendations ; and
  • Assistance in selection and coordination of all Team members throughout planning and negotiation phases.

Vacancy Rates: Are Your Options Fading?

Tenants should watch carefully to detect how and to what extent your field of options changes. Which size blocks of space are getting leased? 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 leasing activity? Review the chart, below, and let's discuss.

HOW MANY BLOCKS OF SPACE ARE AVAILABLE FOR YOU? San Francisco County Oakland San Mateo County East Bay Counties
Q3’15 Q4’15
5,000–9,999 sq. ft. 241 233 64 Call us for more info
▼ 3%
10,000–19,999 130 125 26
▼ 4%
20,000–29,999 40 37 11
▼ 8%
30,000–39,999 20 19 4
▼ 5%
40,000–49,999 13 12 1
▼ 8%
50,000+ 38 42 6
▼ 11%

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. To discuss your space needs in person, call 415-434-2820 or email

Five Brokerage Firms / 12M SqFt of Space / 420 Buildings Listed: How Do You Spell “Conflict of Interest”?

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? Who’s marketing 75% of the space in San Francisco?

The top companies controlling the most space available are NOT landlords….Rather, they are office leasing brokerage firms acting with the landlord’s interest in mind. They are:

Cushman & Wakefield
Newmark, Cornish & Carey

These brokerage firms control over 75% of all listings and are beholden to more than 400 local landlords, paid to drive up rental rates and drive down concessions for tenants.

Since their allegiance is committed to so many landlords, how can they possibly represent YOUR interests—the tenant’s interests—objectively and aggressively?

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