During the tech leasing frenzy of the last cycle, some brokers were concerned about the reliance of the market on big employers, such as Salesforce. They were trying to understand the impact of one or two of them putting up half a million square feet of space back on the market in the future and what kind of effect that would have on the overall San Francisco commercial real estate industry. While availability percentage across the city still hovers in the high twenties, the added 412,000 square feet that Salesforce is putting on the market at its 50 Fremont property may not bode well for the industry. Since the company owns the property, this space may not be counted as a sublease opportunity, but rather as availability on a direct basis.
The announced availability was first reported by the San Francisco Business Times.
50 Fremont is a Skidmore Owings & Merrill-designed 43-story office tower. Its total square footage covers an area of roughly 817,000 square feet. The portion that is put up on the market for lease is roughly half of that. The property was purchased by the CRM software company in 2015 for $638 million, according to public records, and the building is fully occupied by its owner. Most of the space that Salesforce is putting on the market, or roughly 352,000 square feet will be available on August 1st. The remainder of the space can be occupied as early as December 1st.
In a statement, the company explained that it will retain ownership of the property and that it could re-occupy the building in the future. Salesforce is San Francisco’s largest private employer, and the company stated that it remains committed to the city and is actively welcoming employees back to Salesforce Tower.
However, national and regional trends of the COVID-19 pandemic will likely extend employees’ desire to work from home and transform their working habits permanently. Filling that big amount of space may take some time, and Salesforce will most certainly have to compete with other plug-and-play spaces offered throughout the city.
A few recent industry comparisons show that there is some leasing activity in the city, and Google just recently took down 300,000 square feet at 510 Townsend. However, deals of that size are far and few in between. According to a recent first quarter of 2022 lease comparable document by JLL reviewed by The Registry, most of the leases were under 50,000 square feet. And while a number of law firms are paying leases over $100 per square foot, they seem to be an exception to the rule.
Hogan Lovells signed a lease with Boston Properties at Four Embarcadero Center at an effective rate of $107.37 for 126 months. The firm took 22,501 square feet at a starting rent of $110.
In February, BigCommerce signed a lease at the KPMG building located at 55 2nd Street for 11,360 square feet with a starting rent of $90. The lease is for 41 months.
Hivemapper took down 6,440 square feet at 101 Second Street for 41 months paying a starting rent of $70. FTX, on the other hand, is paying $59 per square foot annually for 18,603 square feet in the same building, and it plans to occupy its space for 42 months.
JLL also reported that Datadog will be occupying 19,627 square feet at Salesforce’s 50 Fremont for a period of 30 months. Salesforce signed the lease on January 1st, 2022 at a starting rate of $66.19.