We sat down with Colton Commercial & Partners founders Brad Colton and Jay Shaffer to hear their opinions on the divergent trends in leasing demand and the demand for investment properties in the San Francisco market.
Office leasing remains strong, but Colton and Shaffer predict an attenuation of tenant demand, evidenced by a recent significant increase in sublease availability. “We are currently tracking 271 sublease availabilities in San Francisco accounting for over 2M SF of office space,” said Brad.
He attributes this impending slowdown to VC firms tightening their supply of capital, which has a ripple (or multiplier, for all you economists) effect in the sector. Constricted credit can exacerbate the issue, making it more difficult for tenants to raise additional capital.
The local investment sales market, however, is highly active and promising, especially for office and mixed-use properties. This is supported by recent record-setting sales, such as Pembroke’s purchase of 140 New Montgomery, which sold for nearly $960/SF. Other pending sales may surmount the $1k/SF psychological barrier, which, until now has never occurred for an office building sale in the history of San Francisco. One such potential sale is 222 2nd St, fully leased to LinkedIn.
“We continue to see a tremendous appetite by both local and overseas buyers for property in San Francisco. Rents are high, interest rates are low, IPOs are lackluster, and the stock market is volatile, domestically and internationally. The result is that commercial real estate, especially in major metropolitan markets in the US, like San Francisco, has become a safe haven for many real estate investors’ funds,” Jay tells us.
He recently completed the sale of 701 Sutter St, an 18,800 SF office and retail building in Union Square, while his partner Brad just listed 109 Stevenson St and 99 Osgood for sale. For more information, click here.
