MARKET SNAPSHOT

Submarket
North Financial District
South Financial District
Submarket
SOMA
North Waterfront / Jackson Square
Mid Market
MARKET SNAPSHOT /// Q1 2014
Who is looking after you?
Faller Real Estate is a boutique real estate consulting firm dedicated entirely to assisting companies with short and long term strategies to hedge against current market risks and plan for a
successful future. Our unique business model and compensation plan provide for the white-gloved service and attention that growing companies need and large real estate service providers
cannot provide. Faller Real Estate has had the great fortune to successfully guide both technology and professional service clients.
Go to www.faller-re.comto learn more or call 415.399.0511.
Rents continue to climb as available space diminishes, particularly view and creative space of all sizes as well as large
blocks of contiguous space. As unique and high end spaces decrease in availability, Faller Real Estate is seeing rents
spike for both commodity space and value space. What is driving this phenomenon?
New Development There is approximately 3.5 million square feet of development in the pipeline, including speculative
development. Over 50% of this new office space has been pre-leased causing landlords to capitalize on demand by raising rents.
Building Sales Office properties continue to sell for staggering prices. At the end of 2013, the sale market was hitting mid
$600s per square foot. Currently, 33 New Montgomery Street is for sale with an expected sales price of over $700 per square
foot. With only a 5% vacancy rate the buyer is betting on future rents averaging in excess of $70 per square foot. As these
buildings sell and require higher rents, all office buildings take advantage of the rising tide squeezing as much rent out of new and
renewing leases as possible.
Supply Constraints As large tenants make headlines gobbling up big blocks of contiguous space in anticipation of future
growth, where does that leave the middle market and smaller sized companies? While there are more available spaces, albeit
commodity in nature, for the smaller 5,000 +/- sized tenants, there is a distinct limitation of spaces in the 10,000 15,000 size
range. This is primarily true for two reasons; first, historically San Francisco is a small tenant market. With the recent Bay Area
economic expansion, these 3,000 5,000 square foot tenants are now becoming 10,000 square foot tenants. Secondly, in San
Francisco, typical floor plates average between 10,000 - 15,000 square feet. As larger multi-floor tenants look for stacks within a
building, full floors are becoming more scarce.
The competition is intense and rents continue to rise. What do you do?
Start Early & Be Obsessive If your business allows, start the renewal and evaluation early, at least 12 months in advance of
your lease expiration. If your business is rapidly growing, or contracting, and you do not have the ability to plan 12 months in
advance, be obsessive - turn every stone and knock on every door. In todays market, you need a focused broker with available
bandwidth to invest 110% of their time into your renewal or relocation. While larger firms may command 25% or more of both the
landlord and tenant market, how can they be your fiduciary if they have to serve many opposing types of clients?
Consider Term and Exit Strategy Unless your business needs a long-term lease, we are suggesting companies evaluate
subleases and if possible not exceed 5 year lease terms. The San Francisco office market is cyclical and while we do not see any
relief for the next couple of years, we anticipate an eventual softening of rental rates.
Maximize Utilization How effective is your space? Are there opportunities to increase employee density per square foot and
improve work flow? By working with a broker and architect we are often able to improve the quality and value a space delivers to
tenants.
View
$95
$79
Creative
$62
$54
$57
Commodity
$55
$55
Value
$45
$42
Commodity
$62
$47
$55
Value
$45
$46
$43