Hudson Pacific Nabs Third Big San Francisco Lease: Salesforce

By Sharon Simonson

Hudson Pacific Properties Inc. has signed a long-term lease with Inc. to occupy 225,000 square feet at 101 Spear St. in the sweet spot of San Francisco’s South of Market neighborhood.

One rincon_Hudson Pacific The Registry real estateHudson Pacific President Howard Stern told The Registry Jan. 7 that the Los Angeles-based real estate investment trust two days earlier had signed its third significant lease in San Francisco in the last three months.

Including the Salesforce transaction, the company has leased 525,000 square feet in three San Francisco properties, starting with Square Inc. at 1455 Market St. in October and including its lease with GitHub Inc. to move its headquarters to 275 Brannan St., announced Jan. 7.

“To be a landlord in San Francisco is obviously to be in a good place today,” Stern said.

Stern attributed the leasing success to the company’s range of available space sizes. “We can cast the net wide. We provide a menu of options, and we can facilitate a mid-size user, small floor-plate users, large floor-plate users,” he said.

“The follow-up is that our basis in these two assets—1455 Market and Rincon Center (101 Spear St.)—allowed us to do competitive deals, which drove demand in both of these transactions,” said Drew Gordon, a Hudson Pacific senior vice president and top manager in San Francisco.

Hudson bought 275 Brannan in September 2009, paying $12.25 million, or $220 a square foot. The three-story, brick-and-timber building was constructed in 1905. Hudson has undertaken a substantial renovation to complement a partial rework of the property done in 2002.

Enterprise cloud-computing company Inc. is the largest technology tenant in San Francisco and among the largest private company tenants in the city, according to Jones Lang LaSalle. It signed two large leases and a 100,000 square foot expansion in the city in the fourth quarter alone, said Amber Schiada, a JLL research manager.

GitHub is a Web-based hosting service where software developers can collaborate on open-source projects and proprietary projects. Square allows credit cards to be accepted on the move all of the time using a credit-card reader compatible with Apple’s iPhone and iPad and Android devices. Android is the Google Inc. operating system.

GitHub has seen rapid growth in the last five years, going from less than 50,000 users in 2008 to more than 2.7 million last year. About a quarter of the visitors are from the United States, the rest are from markets globally including Germany, the U.K., China, Japan, France and India. GitHub will use the Rincon Center offices as its headquarters.

Both the Salesforce and GitHub leases with Hudson Pacific begin next year—GitHub in early April. Salesforce will move into its new space in stages over the next two years starting this year, Stern said.

Salesforce signed commitments for an additional nearly 775,000 square feet in San Francisco in the fourth quarter, said JLL’s Schiada. The company agreed to expand its footprint by 25 percent at 50 Fremont, where it signed a lease to occupy 401, 000 square feet almost exactly a year ago.

At the same time, the business-services company agreed to occupy 350 Mission St., a 445,000-square-foot office tower to be built by Kilroy Realty Corp. at the doorstep of the Transbay Transit Center. Salesforce’s total occupancy in San Francisco will exceed 1.8 million square feet by 2015, up from 1.1 million square feet now, according to JLL and Schiada.

“All of these tech companies really want to make San Francisco their headquarters location and make their mark on the city, so with a lack of large blocks of space left, they are taking what they can before there are no more left,” she said.

She expects San Francisco office landlords to see another two years of solid rent growth and occupancy gains, but Schiada cautions: “You can’t have outrageous growth like this forever, so there will be a slowdown. It’s not a negative thing, but we are moving into leasing and rental growth that will be much more sustainable.”

The question on everyone’s mind is whether—or how long—the talent spigot that is the source of the city’s leasing wealth can in fact continue to spew gold. JLL research completed last year showed that companies like Google Inc. and Facebook Inc. are expanding into markets such as Austin, Boston and New York to mine the local tech talent, Schiada said. The great weather that draws the talent to the Bay Area also is at work in the tech expansion in Los Angeles and Orange County, she believes. “It’s hard to predict” what workforce trends will continue or evolve, she said.

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Image courtesy of Hudson Pacific

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