By Meghan Hall
Leasing comparables released by three commercial real estate firms show that contract rates across San Francisco for both Class A and Class B commercial properties ranged from around $50 per square foot up to $85 per square foot during Q3 of 2017. The comparables provide data on leases lasting approximately three to seven years and for spaces ranging from 1,800 to over 200,000 square feet.
The Registry obtained the reports compiled by three firms, JLL, CBRE and Colliers International through sources in the industry in an effort to shed light on the activity in the region and provide a real-world view of the market and what companies are paying for their office space in San Francisco.
The smallest leases were covered in the CBRE report, and they ranged from 1,800 square feet to just under 5,000 square feet.
Mayer Brown, LLP, a global law firm, rented the smallest space of the leases reported. Mayer Brown began renting 1,816 square feet at 101 Second Street in August 2017 from landlord Trammell Crow Company, a Texas-based commercial real estate developer for $77.14 per square foot. The 60-month new lease commenced over the summer, and it will expire in July of 2022. Trammell can increase the rent in 3 percent increments, and it did offer the tenant two months of free rent as an incentive, as well. Cater Beim of Colliers represented the tenant, and Phil Tippett of CBRE represented the landlord.
The Massachusetts Institute of Technology began a new lease at 235 Pine Street in September 2017, and their main leasing comparables are similar to Mayer Brown’s. MIT is leasing 1,863 square feet for $75.25 per square foot also for a 60-month period. The lessor is CBRE Global Investors, who offered MIT one month of free rent with 3 percent rent escalations. The turnkey lease was brokered by Stephen Llevano of Cushman & Wakefield, who represented the tenant, and Meade Boutwell of CBRE, who worked with the landlord.
Similar to MIT, Drive Motors, a tech firm that builds e-commerce sites for auto dealerships, also began a lease at 235 Pine Street in September of 2017. Drive Motors is leasing 3,445 square feet from CBRE Global Investors and signed a lease for $69 or 72.16 FSG per square foot with 3 percent escalations. The 48 month lease will end in September 2021. Johan Quie from Innovation Properties Group represented Drive Motors, while Meade Boutwell of CBRE represented the landlord.
Standard Chartered Bank renewed its 4,827-square foot lease at 50 Fremont Center through September of 2020. Standard Chartered is leasing for 26 months and has the lowest lease rates at $51 per square foot. The landlord is Salesforce. Two CBRE representatives, Brooke Agresti and Brian Beswick, worked with the tenant and landlord, respectively.
Financial services firm Neptune Financial Incorporated leased 2,789 square feet from landlord AEGON in the Transamerica Pyramid at 600 Montgomery Street. The new lease began in July 2017 and will end in June 2020. Even though this was a new lease, Neptune Financial did not receive any free rent in their contract. However, Neptune Financial pays less than other downtown lessees such as Mayer Brown and Drive Motors, paying $62 ($63.88 FSG) per square foot. The lease was brokered by Ross Robinson of Cushman and Wakefield, who represented Neptune Financial, and CBRE’s Marc McLaughlin, who represented AEGON.
While the majority of Colliers’ comparables reported on leases with more than 25,000 square feet, Colliers’ leasing comparables did include a couple of smaller leases, like SKS Partners’ lease at 601 California Street. The San Francisco developer and property owner signed their 84-month lease in October 2017 and their expanded occupancy of the 9,385-square foot office space will begin in April 2018. SKS Partners is starting to lease the space at $68.51 FSG with 3 percent annual increases with an effective lease of $76.68 FSG. The landlord is Belmont-based Embarcadero Capital Partners.
Symantec in San Francisco signed an 84-month lease at 100 California Street for 40,000 square feet that starts on October 1, 2017. The company is expected to move into the building in April of 2018. Symantec is paying $80 FSG to start with 3 percent escalations with an effective rate over the lease period of $87.57 FSG. Broadway Partners is the landlord.
Landlord Rubicon Point Partners leased 43,489 square feet to Periscope Data, a data analytics firm, for 72 months at 1125 Mission Street. The lease starts at $70 with 3 percent increases that will come to an effective rate of $75.46. Tenant Improvements are coming in at $120 per foot, and it is not known if Rubicon gave Periscope any free rent.
Farm management software Granular signed a 70-month sublease at 731 Market Street from Flexport, a logistics software company. Granular is paying $74 per foot with 3 percent escalations and 4 months of free rent. The effective rate of the lease comes to $81.87.
Most of JLL’s leasing comparables included mid-size spaces between 5,000 and 10,000 square feet like the SKS Partners lease. Both Hearsay Systems and JETRO are also leasing Class A properties at similar rates to SKS Partners. JETRO, also known as the Japanese External Trade Organization, will continue to lease 6,787 square feet of space at 575 Market Street from the John Hancock Life Insurance Company with a new lease that will commence in January 2018. The lease agreement includes two months of free rent, and JETRO will pay $73 per square foot ($75.35 effective FSG). The John Hancock Life Insurance Company can bump the rent up by three percent, and the 62-month lease will end in February 2023.
Hearsay Systems, a digital marketing platform for financial service providers will also continue to lease its 20,633-square foot corporate space from JP Morgan Chase & Company. Like JETRO, the renewed lease will begin in January 2018, and Hearsay Systems will pay a comparable rate to JETRO’s at $75.50 per square foot ($77.49 effective FSG) and receive two months of free rent. The 36-month lease will end in January 2021, and JP Morgan Chase & Company can increase the rent 3 percent annually.
Stride Health, despite renting a Class B space, is also paying a similar rate for its 13,100-square foot space. Stride Health began its lease at 501 Second Street in September of 2017 and is leasing from San Francisco-based Swig Company. The contract rate for the Class B property is $75.64 ($79.31 effective FSG) with 3 percent escalations, and Stride Health received one month of free rent and will pay a 3 percent increase in rent each year. The lease will expire in October 2021.
CPA firm Calegari and Morris is renting 15,063 square foot space from real estate investment firm Columbia Property Trust at $66 per square foot ($74.35 effective FSG). Calegari and Morris received three months of free rent in trophy asset at 650 California, more than Stride Health, Hearsay Systems and JETRO. Columbia Property Trust can increase the rent by 3 percent annually, and it provided tenant improvements at $138. The turnkey, 123-month lease at 650 California Street began in October 2017 and will end in January 2028.
Only Fetch Media’s contract rate with Sierra Maestra Properties was lower than Calegari and Morris’ reported rate. The global marketing firm began a seven-year lease at 141-153 Kearny Street near Union Square in August 2017 for 84 months. Fetch Media received two months free rent in the Class B property and is paying $63 per square foot for its 10,343-square foot space. Fetch Media’s lease will end in August 2024, with 3 percent lease rate increase annually. Sierra Maestra also provided $25 per square foot of tenant improvements to the tenant.
As The Registry first reported, AirBnB is expanding its Class A office space at 650 Townsend Street beginning in March of 2018. The vacation rental service is leasing the largest amount of space out of the reported lessees, at 287,000 square feet. The expansion will take place gradually; AirBnB will rent 170,000 square feet of space in March 2018 and will then expand into additional 120,000 square feet of space by March of 2020. AirBnB is renting the entire East Tower in the property from social game developer Zynga for $65 per square foot, which is a much lower contract rate than even the Class B leases of more than 25,000 square feet. Zynga can increase the rent by 3 percent annually. Zynga provided $105 per square foot in tenant improvements.