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Study: Class A Office Investments in SF Perform Over Long Term

SAN FRANCISCO-The study finds that office investments performed well for investors over the past decade. It concludes that in order to support further price appreciation or even new development, San Francisco will need Class A rents to average over $40 per sf with vacancy rates under 10%.

By Brian K. Miller | Updated on August 31, 2005

SAN FRANCISCO-A new study by the local office of Newmark has found that class A San Francisco office investments have performed well for investors over the past decade in spite of the dot com crash. Newmark’s examination of a decade of pricing statistics for investment grade office building sales here found that prices increased overall about 5% while the overall inflation rate (CPI) in the Bay Area during the same period was 2.9%.

Average prices for high-end office investments in San Francisco rose from $180 per sf in 1995 to an average of around $325 per sf this year, according to the study. Of the 35 major office deals closed in San Francisco during the period, six exceeded $400 per sf.

The study also found that investment-grade real estate prices paid through the end of 2004 were not the highest prices paid over the decade, as many might have expected. The Utah State Retirement System-Cottonwood Partner’s acquisition of 500 Howard Street, a 10-story, 230,000-sf class A Tower completed in 2003, was the high water mark at about $512 a sf, according to the study. The largest transaction of the last decade was Boston Properties’ 1998 acquisition of the 4 million-sf Embarcadero Center for roughly $1.23 billion, or about $307 per sf.

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