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San Francisco's Biggest Office Landlords Say They Are Still Bullish On The City

Some of San Francisco's largest office landlords say they are confident in the high-priced market's resilience through and beyond the coronavirus pandemic.

650 California St., owned by Columbia Property Trust, shown in front of Vornado Realty Trust-owned 555 California St. with Boston Properties-owned Salesforce Tower in the distance.

Combined, Paramount Group, Shorenstein and Columbia Property Trust own several million SF of Class-A office space in and around S.F.'s central business district.

Each of their chief executives have said the market's strong starting point and tech-heavy makeup means it should rebound relatively well, despite reports of remote work winning new disciples and the decentralization of offices getting more attention.

"San Francisco started from a really strong place pre-crisis, so I think that bodes well for a strong recovery," Columbia Property Trust CEO Nelson Mills said. "From an economic standpoint, I think it’ll bounce back. I think the fundamentals are strong and it will do well.”

Last year, Mills emphasized a healthy investment appetite in the city, saying at a June Bisnow event, "It's a great time to be an office landlord in San Francisco." That hasn't changed for the long-term, he said.

Even amid the throes of the pandemic, Columbia, whose S.F. properties include 650 California St. and 333 Market St., is seeing May rent track "similarly" to the 98% it collected in April, Mills told Bisnow

Last year, the city's office sector had reached new heights, with Q4 average direct asking rents in the CBD topping $95 per SF and some Financial District buildings trading hands for $900 or even $1K per SF.

Now, few are hazarding guesses on where those metrics end up, and when, in light of the pandemic and its related economic slowdown. But big REITs like Vornado Realty Trust and Paramount Group said they are still bullish on the city for the long term.

"It’s important to note that the largest aggregators of office space in San Francisco, which are the type of tenants we are focused on, are all among the most profitable companies in the world," Paramount Group President and CEO Albert Behler told Bisnow via email.

Paramount, which is San Francisco's largest office landlord, according to JLL, also predicts that S.F.'s strong starting point has positioned it well. Since acquiring Market Center and 55 Second St. last year, it owns $5.1B in properties in the city, Real Capital Analytics told Bisnow

"Furthermore, it cannot be neglected that the new work environment created by this pandemic may necessitate an additional need for and redesign of space to keep employees safe," Behler said.

Vornado, too, appears to remain optimistic about S.F. In an earnings call earlier this month, its CEO, Steven Roth, used the city's situation as an example to say that politics usually don't negate a robust CRE market

Likewise, Shorenstein CEO Brandon Shorenstein said the company has already fielded calls from tenants saying they will need to lease more space to lower density. Echoing investors' worries before the coronavirus outbreak, Shorenstein said S.F.'s office sector is more vulnerable from a political standpoint than to the threat of any long-term changes in demand.

Mills mentioned Twitter, whose HQ Shorenstein owns, as an example of the office sector's endurance. Despite making remote work an option for many of its employees, the social media giant said it has no plans to shrink its office footprint

“The offices that they’ve created serve a purpose: culture, security," he said. "There were economic, financial and cultural drivers that drove them to that model in the first place, and I think they still exist."