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.
- Tenant Concerns About Landlords Sweeping The Market
- Tenants Concerned About Landlord Financials
- San Francisco Office Space Leasing Slows
- Bordeaux Centre Taken By Lender
- With Office Market Softening, Some Landlords Mull Reducing Asking Rents