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San Francisco Office Vacancy Skyrockets Higher

The San Francisco office market is enduring the nation’s most severe occupancy decline and downturn in asking rents.

Remote-based work is an acute threat to the city, where leasing has grown incredibly expensive and workers are reliant on public transportation and enclosed elevators to reach high-rise offices. New leasing activity remained muted though September, and tenants including Pinterest have scaled back growth plans.

San Francisco registers the highest sublease availability rate across the country by far. Sublet space now accounts for roughly 40% of the market’s total availability, having risen significantly over the past year.

By Jesse Gundersheim
CoStar Analytics. October 2020

Target Store coming to Scotts Valley

The city of Scotts Valley announced Wednesday that a Target store is coming to the former Kmart building in the Scotts Valley Square Shopping Center.

“Target will complement and catalyze our local businesses while providing our community with access to a world-class retailer,” said Scotts Valley Mayor Randy Johnson in the prepared release. “For years this has been a top priority for our community and today we can say we are delivering it.”

Source: Santa Cruz Sentinel

San Francisco Is Leading Office Rents Across the Country, Into the Red

Asking rents for office space in the San Francisco market are falling for the first time in over a decade, and are dropping at the fastest pace of any other market across the country. With office availability on the rise and tenant demand for new space still muted, brokers are commonly revising asking rents lower for spaces listed as available in response to the weaker leasing environment and growing competition for tenants.

The days of soaring asking rents may have already reversed course, but rent levels climbed exceedingly in the latest expansion cycle. San Francisco ranks as one of the most expensive overall office markets in the country, and cost-sensitive tenants may be looking to the East Bay, where average market rents are 40% lower, or out of the Bay Area entirely in search of affordability.

By: Jesse Gundersheim
CoStar Analytics. August 26, 2020

Pinterest pays $89.5 million to terminate San Francisco office lease

Pinterest, a social-sharing site popular for pinning recipes, home inspiration and more, has canceled its large San Francisco office lease.

The lease was for 88 Bluxome, a high-rise complex to-be-constructed near Pinterest’s existing San Francisco headquarters. The company cited a shift to work-from-home due to the coronavirus pandemic in its decision. Pinterest will keep its current city offices, however.

“As we analyze how our workplace will change in a post-COVID world, we are specifically rethinking where future employees could be based,” Pinterest  Chief Financial Officer Todd Morgenfeld said in a statement Friday. “A more distributed workforce will give us the opportunity to hire people from a wider range of backgrounds and experiences.”

By Katie Dowd, SFGATE

Published 6:50 am PDT, Sunday, August 30, 2020

Retail Properties Face Added Risk of Closings as Office Workers Stay Home

As retail bankruptcies pile up during the coronavirus pandemic, vacancies across the country are rising and don’t look like they’re going to stop. CoStar estimates upward of 100 million square feet of retail space will go dark over the course of the next one to two years as a result of store closings and bankruptcy filings. The situation is likely to worsen because some retailers are dependent on nearby offices that might not be filled with workers for some time

As a growing number of firms such as Amazon, Facebook and Google announce plans to allow employees to work from home for the medium term or even indefinitely, Corbett expects an increasing number of restaurants and retail shops to close that relied predominantly on day-time, office-using employee traffic.

By Jennifer Waters. Costar News. 8/10/2020

Google Letting Staff Work From Home Until Summer 2021 May Spark Retail Fallout

As the largest occupant of real estate in the Bay Area, Google’s decision to let staff work from home will keep one of Silicon Valley’s largest workforces out of the office. Jesse Gundersheim, CoStar’s director of market analytics in the San Francisco Bay Area, said the company occupies at least 25 million square feet of office, flex and industrial space combined throughout the region.

While Google’s geographical footprint is predominantly concentrated in the Bay Area, the company leases or owns offices in major cities around the world, including New York; Los Angeles; Seattle; Portland, Oregon; and Atlanta. Earlier this year, the company had planned to invest more than $10 billion in new offices and data centers across the country, a figure that has since dropped dramatically because of its response to the pandemic.

Google’s decision earlier this year to keep employees home came before other tech companies decided to follow suit. Potions of the tech office population may never return.

CoSrat News. 7/27/2020. Read more here.

Real estate CEO says ‘a little bit of humanity’ is needed as concerns over evictions rise

A real estate brokerage CEO told CNBC that flexibility and understanding is needed as concerns rise over the possibility of a wave of evictions linked to the coronavirus. 

“We have to apply a little bit of humanity in this environment because we are all in this storm, but not everybody is in the same boat,” Bess Freedman of Brown Harris Stevens said on “Power Lunch.” 

Freedman said she hopes to see policymakers and private sector landlords find a compromise during a time of widespread economic hardship. 

Read more here.

Apartment Rent & Demand in San Francisco

Covid-19 has caused many changes in big cities like San Francisco. Some good changes, like less traffic, adaptation to technology which supports WFH (work from home) resulting in greater flexibility and so on. One less predicted consequence, is a reduction in demand for apartment housing in San Francisco.

Since the outbreak, the tech sector has eliminated over 25,000 jobs in San Francisco which means less demand for high-price housing. This is due to the fact that tech employees no longer need to live/work in the city. Residential rents have dropped nearly 7% in San Francisco and in conversations with local property management, it’s not just the loss of work but a desire for more space and greater social distancing.

Tenants are trading in their hip urban living spaces for less expensive markets where they can afford a place of their own. They’re moving out of their small, walk-to-work apartments usually shared with multiple housemates for a freestanding, suburban home. We see this trend continuing as the adaptation of technology is allowing people to WFH or where ever their heart desires.

Discounters Snap Up Retail Leases

As retail leasing begins to crawl out of the hole it fell into during the coronavirus pandemic, a clearer sense is emerging of where consumers are shopping.

The busiest companies were those moving on with expansions that even the pandemic couldn’t undo. Discount retailers Dollar General, At Home and Ollie’s Bargain Outlet were among the most active. Apparel, department stores and restaurants are still struggling.

Other active tenants in the quarter included grocers and even auto repair and parts shops Caliber Collision Centers and AutoZone. We don’t know what the future holds for retail but we are starting to get a glimpse of which sectors are still thriving.

Costar News. Jennifer Waters. 7/9/2020

Will Co-Working Spaces Return?

A few short months ago, “co-working” spaces were thought to be the future of office spaces. With the pandemic forcing more people to work from home and many tenants unlikely to renew short-term leases, co-working companies are struggling to stay afloat. On top of that, large companies may not renew their memberships as they lay off workers and cut costs. Co-working companies are asking Landlords for help during this time as the future for co-working spaces is unknown.

Several co-working companies are switching from leases to revenue-sharing arrangements with landlords, which should make the industry more resilient in future downturns by giving the co-working firms more financial flexibility.

Some co-working CEO’s think that in the long run, the industry could benefit from the current crisis. As more companies forgo expensive long-term leases, adopt flexible schedules and let employees work from home on some days, the flexibility of a co-working membership could become more appealing.

Source: 4/14/2020 Wall Street Journal, By Konrad Putzier.


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