Technology tenants driving up leasing costs in San Francisco is hardly news anymore. Value add developers have had a healthy flow of demand for their leased-up properties, and they have been flipping buildings earning healthy returns.
Yet, the spillover effect of that is just starting in some cities that bound San Francisco. Oakland has been one obvious location that has benefited from this. San Francisco-based Ellis Partners, for instance, acquired 1111 Broadway in downtown Oakland in November of 2013 for $279 per square foot, or $158 million, for the 566,168 square foot Class A building. Just a year later, in November of last year, the Office of the University of California Regents had offered Ellis Partners $215 million or $380 per square foot the building.[contextly_sidebar id=”yWNxKCRDKRYSAgxs3njMHOjxQ1Ph4zkV”]Now, the demand for office buildings to the immediate south of San Francisco is starting to catch up. Westport Capital Partners purchased two buildings, 5000 and 7000 Marina Blvd. in Brisbane, last year and is planning to spend approximately $10 million on interior and exterior renovations on both assets in an effort to attract companies who are willing to be a stone’s throw from the city limits of San Francisco. The buildings total 150,000 square feet and sit on the northern waterfront of the small peninsula city, overlooking the the bay.
South San Francisco, the self-proclaimed industrial city is home to an established life sciences sector. But, in the recent decade it has also been able to attract a number of technology companies. The boundaries between Brisbane, San Bruno and South San Francisco are almost indistinguishable, which is helping the north San Mateo county sub-market collectively benefit from a budding tech sector.
The interest in this city was amplified earlier this year when Irvine-based HCP announced that it would start the development of its roughly one million square foot campus at Oyster Point. The firm has already kicked off construction on 253,000 square feet on a speculative basis. “We feel that starting the Cove at this time will optimally meet the demand in the market. This is reflected in that the direct vacancy for life science properties in South San Francisco is [below] one percent,” said Jon Bergschneider, executive vice president for HCP Life Science Estates, at the time the development was announced.
So, it is with little surprise that Founders Properties was able to attract a buyer last week for its 68,000 square foot Class A property for $21.4 million, or roughly $314 per square foot. The fully occupied building at 4000 Shoreline Court in South San Francisco, known as Sierra Point was originally developed by Opus West. It is a three-story building that features easy access to Highway 101 and amenities such as as an on-site hotel, café and restaurants. The property is also connected to Caltrain and BART via a shuttle service.
The tenants in the building are Capgemini, comScore and Future US.
The buyer is San Diego-based Phase 3 Real Estate Partners. in an e-mail response to questions about the transaction, DTZ in San Francisco commented that the motivation for the seller was a national effort to cull the portfolio. DTZ’s Steve Hermann, Robert Gilley, Eric Fox, Mike Moran and Ben Paul represented the seller in the transaction.
According to a first quarter 2015 office market report by DTZ, the north San Mateo county is showing the largest vacancy compared to mid-county cities like San Mateo, Foster City and Redwood Shores and south-county cities like Redwood City, Menlo Park and Belmont/San Carlos. However, the relatively high vacancy in Brisbane of approximately 43 percent should be taken into context that the whole city has roughly 790,000 square feet of building base, of which the two empty buildings owned by Westport represent almost half of all the vacancy.
South San Francisco has the largest building base, nearly a third of the entire north San Mateo county sub-market. Asking rents in the north-county submarket are the lowest in San Mateo county, $3.17 compared to $4.24 in central county and $5.04 in south county. However growth is limited in the south and central country, where vacancy is at 8 percent and nearly 11 percent, respectively.