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SF Chronicle Article Today On San Francisco Office Space Market

October 3, 2008

The SF Chronicle today is featuring an article discussing the trouble San Francisco office market is facing as a result of all that is going on in the equity and debt markets. There are two key takeaways in this article. The first is that we could see a 900 basis point increase in the office vacancy rate in the not too distant future. That is a serious number.

The second thing to take note of is in the last section, where a landlord who seemingly has a tenant in hand is running into trouble securing additional monies from his lender to fund tenant improvements. That is something we have been seeing become more common recently, along with landlord’s bumping up their security deposit requirements.

As a tenant, given the inherent risk in the market, if large security deposits and improvements are involved, it becomes absolutely crucial that non-disturbance agreements be attained from existing and future lenders as part of the deal. Tenants need to have assurance that no matter what happens with the building, there tenancy and investment is secure.

Furthermore, if an increasing number of landlords become unable to fund improvements, that will put significant downward pressure on rents as many landlords will be forced to offset what they can’t provide in TI dollars with a lower rental rate and/or additional free rent to secure tenants.

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Categories: Commercial Finance and Lending | Market Data | Trends
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ADB October 4, 2008

really good post. obviously the landlords with a low basis will do okay in this environment. however, in the last 2 years so many properties traded for a premium (largely based on the prospects of increasing rents). these properties will trade again in 2009/2010. Well capitalized landlords will scoop up some good off-market deals.
Alan Bernier, Rofo – San Francisco Office Space

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