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Investment Sale Market to Weigh on San Francisco Tenant’s Tax Bill & the Sublease Watch Wages on into 2020

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By Cameron Love

The volume and value of capital market investment sales towards the end of 2019 increased from recent quarters, which will significantly impact tenants in San Francisco in 2020. Notable recent transactions include Market Center (555 & 575 Market), 199 Fremont (49% share) and Oceanwide Center, all which traded for over $950/SF. The iconic Transamerica Pyramid is reported to be in the final stages of buyer selection and Juul is also currently seeking to dispose of its South Financial District headquarters at 123 Mission it purchased just last summer. Many tenants should be prepared for property tax increases, on top of the City’s commercial rent tax (2019 Prop C) which San Francisco businesses have seen impact their operating expense and tax statements over the past 12 months. If you have concerns regarding your rent and real estate tax statement passthroughs, consider leveraging Hughes Marino’s complimentary lease audit service.

Visa, the San Francisco-based credit card giant, remained in the headlines, first announcing a new global headquarters lease with Tishman Speyer and the San Francisco Giants’ Mission Rock office development just south of Oracle Park. With 300,000 square feet delivering in 2024, the Visa team plans to house 1,500 team members, including the Plaid team after a $5.3 billion acquisition of the venture-backed payments startup was announced earlier this month. Apart from Visa and a natural expansion in Showplace Square from Airbnb to secure the former Pinterest office at 808 Brannan (61,000 square feet), there has been a decrease in large block leasing activity with only a handful of 50,000 square foot or greater leases all completed by newer, venture-backed companies in the fourth quarter, signaling a likely flattening of the San Francisco office leasing market.

As I highlighted in our November report, the sublease market will stay in the spotlight as a telling sign to the health of the San Francisco commercial market into 2020 and beyond. Uber has yet to secure replacement tenants in its four Market Street buildings, along with Stripe on Townsend Street. McKesson is now offering up to 110,000 SF of sublease space at its former headquarters One Post Street, while owner/developer Brookfield is well underway with a major lobby and Montgomery BART plaza renovation. Wework currently subleases multiple floors to growing residential real estate disruptor, Opendoor, in the building as well, yet it’s unclear how the “We 2.0” restructure may yet further impact vacancy. While Knotel successfully subleased 83,000 square feet at 301 Brannan from Cruise, they are now delivering a vacant building as a flexible term “plug and play” offering, further exacerbating a sublease glut that might continue to grow.

Interested in reviewing market statistics? View them on the attached report provided via CoStar.

Cameron Love is a senior vice president of Hughes Marino, an award-winning commercial real estate company specializing in tenant representation and building purchases with offices across the nation. Contact Cameron at 1-844-662-6635 or cameron@hughesmarino.com to learn more.



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