Report: Big Blocks of Space Becoming Scarce

SAN FRANCISCO-Demand for blocks of space over 100,000 sf is close to exceeding supply in downtown San Francisco, according to new research by Colliers International. The situation, being caused by several large tenants currently in the market, could lead to a surge in rents, according to a new report drafted by Colliers International.There were 12 transactions here over 100,000 sf in 2004–five more than the previous two years combined–and several more are on the horizon for 2005. Colliers lists the following requirements in the market for move-ins between now and 2007: UCSF (approx. 300,000 sf), Barclays Global Investors (approx. 250,000 sf), Blue Shield (approx. 225,000 sf), The Gallo Institute in Emeryville (175,000 sf), Sutter Health (approx. 160,000 sf), Citigroup (approx. 150,000 sf), Providian Financial (approx. 125,000 sf), and Advent Software (approx. 125,000 sf).”These large tenants are chasing a limited supply of large contiguous blocks of quality space, so landlords and brokers are anticipating something of a space crunch in this size range,” according to the report, drafted by Colliers Bay Area research director Tove Nilsen. “Although more than 12 million sf of office space remain vacant in downtown San Francisco…few buildings in downtown San Francisco can currently offer contiguous blocks of space over 100,000 sf, and none of the buildings can accommodate the three largest requirements over 225,000 sf.”Part of the explanation is that the construction pipeline has been all but shut off for the past couple of years, helping the market recover from the dot-com implosion. Indeed, very few deliveries are scheduled until 2007, and even those are contingent upon significant preleasing. Moreover, the report states that rent levels will need to be $55-$60 per sf per year to justify the cost of new construction, which is substantially higher than the $35 per sf effective rates that can currently be achieved for most class A space in the CBD.