Ryan Jones

Chuck is cutting back its space usage here in San Francisco. Apparently with all of the economic woes they are trying to tighten their belts. They will still have more than 600,000 sf in the Financial District after they sublease all of their 375,000 sf at One Montgomery. The commercial office market is being flooded by sublease space every day, which is driving down rental rates. This is yet another sign that this is the golden moment for tenants. Don't miss out!

Mayor Newsome announced a stimulus plan for San Francisco in order to jumpstart the local stagnant economy. This comes on the heals of the Federal bailout plan that Obama, the Senate and the House are finalizing details on. The local plan will focus on items such as eliminating payroll tax for companies looking to hire as an incentive to businesses to expand. This will help address the unemployment rate that has shot up from 4.4 percent a year ago to approximately 6.6 percent (as of December). For more about Newsome's plan, please click here.

New statistics coming out for the fourth quarter of 2008 show what we all have been seeing and feeling: vacancy rates are increasing pretty rapidly. In fact a new report says that the downtown financial district vacancy rate currently stands at just over 18%. (Read the article about the report here.) This is significant in terms of understanding how rental rates are affected. With supply increased, demand is lowered - putting downward pressure on asking rates. In some cases rates are dropping fast enough that counteroffers from the tenant are actually coming back lower than initial offers. This all goes to say that it is a great time to be a tenant in the marketplace.

www.OfficeSpaceSF.com

Commercial Real Estate Brokers are quite aware of how few transactions are occurring in the current marketplace. We feel it in our own pocketbooks. As much as it hurts brokers financially, it may be that we are coming into an extraordinary situation. What is happening in the commercial leasing market right now is setting up some incredible opportunities for tenants. There are very nervous landlords in any direction you throw a stone in San Francisco and the entire Bay Area. Nervous landlords means an edge up in negotiations for tenants. This means better rental rates, more concessions like free rent or tenant improvements, and lots of other perks for tenants.

While it seems counter-intuitive to expand or to step out and take a risk to secure space in this economy, it might be a recipe for success for a business with a solid strategy and a growing market share. Check out this article from SF Business times for more about office space.

www.officespaceSF.com

Being a broker in this current economy keeps me on my toes. Office lease rates are moving pretty quickly (down that is). In some cases, rates have dropped quickly enough that tenants will start negotiations at one price and then come back with a lower number as they hear of other deals that come to light demonstrating more savings to be had. We have seen significant reductions in all Class A rates. Where buildings used to be asking rates in the 50’s - 60’s, they are now asking in the low to mid 40’s (or lower in some cases). It is not difficult to find Class A buildings offering mid 30’s and taking low 30’s deals.

What does all of this mean? It means that tenants have the chance to make a hay day of savings in some sweet spaces. I wouldn’t be surprised to see the rates slip quite a bit more over the next 6-9 months. Landlords beware… don’t trail the market down with your asking rates. You will be better off to be agressive and get a tenant locked into what appears to them to be a great deal (before the floor slips a little lower and tenants demand more).