Posted: Feb 9, 2008, 7:16 PM
Join Date: Jun 2006
Location: San Francisco & Tucson
This article doesn't really contain anything new for most of us but it's still worth reading, I think:
Friday, February 1, 2008
Bay Area sprouts new skyscrapers after lengthy hiatus
San Francisco Business Times - by Steve Ginsberg
Spurred by the strong regional economy the past four years, a building boomlet has brought two new office buildings and a hotel to San Francisco, while Oakland will have a new Class A corporate address. All open in 2008, but a slowing economy shrouds their initial success.
There hasn't been a major new Class A office building in San Francisco since 2002, but the drought ends with the opening of 555 Mission St. south of Market Street and 500 Terry François Blvd. in Mission Bay. The city's biggest new hotel since 1987 opens later this month when the Intercontinental welcomes guests at 888 Howard St. adjacent to Moscone West.
Oakland's first new office building since 2002 is called Center 21 and adjoins 2101 Webster St. It will make an impression in the growing Lake Merritt Kaiser Center business corridor.
The burst of expansion is a bit of a gamble in that developers have invested more than $700 million in four projects that face the specter of a possible national recession. After three years of rising rents and office occupancy rates, the market started cooling last summer. All three office buildings were built on spec -- meaning without anchor tenants signed on. Unlike other new hotel highrises in San Francisco, the $200 million Intercontinental does not include condos and must rely solely on the capricious travel and convention industries to generate revenue.
After two years of spiking rents, San Francisco's Class A commercial office market peaked last summer and Tishman Speyer's 555 Mission and CBRE Strategic Investment Partners 500 Terry François could face leasing challenges.
"I expect both buildings to be successful, but they have their work cut out for them. The biggest challenge is the cost of tenant improvements," said Wes Powell, a leading tenant broker at Jones Lang LaSalle. "The Mission Street building is in a better location in the heart of the market, but is so much larger. It will likely take 12 to 15 months to get it 95 percent leased."
Tishman signed DLA Piper to a letter of intent for 85,000 square feet to be its kickoff tenant. DLA is a global law firm that is expanding in Northern California and has been at 153 Townsend St.
The Intercontinental Hotel may have the best chance at getting out of the gate quickly as San Francisco's convention bookings appear solid in 2008. Atlanta-based Intercontinental has already achieved its first three-month occupancy goals through pre-bookings, according to the hotel's spokeswoman Carmen Perez.
Hotel consultants such as Curtis Davies predict the new hotel will have a solid occupancy rate between 65 percent and 70 percent its first year with average room rates above $200 a night.
555 Mission vs. 500 Terry François
Companies looking for space in a new San Francisco building in 2008 have options in two very different settings. Tishman Speyer's 33-story tower at 555 Mission is apt to attract more traditional office users such as law firms and accountants, while its smaller rival in Mission Bay, 500 Terry François, is looking to lure "progressive" tenants and high-tech firms to its bayfront location.
New York's Tishman Speyer has had a checkered past in San Francisco. It was forced to sell its Market Center project for $79.5 million after acquiring the two Market Street towers for $189 million in 1989. The demise of the dot-coms caused the loss, but its new building is a testament to the company's belief in San Francisco's office market.
Tishman has spared few expenses in crafting a silver LEED certified building that will add a greenish-white glow on the skyline at night. Its glass cable wall, 24-foot-high lobby will be used for art exhibits and could become an important public space. The building cost $300 million and with 625,000 square feet will be the largest and tallest office building in the burgeoning South of Market office corridor. Tishman declined to comment on the project.
The building will be completed in late 2008, but competition could come in late 2009 when Lincoln Properties could complete its 350 Bush St. building, a 350,000-square-foot, 20-story project in San Francisco's central business district. No other major office buildings have been approved in the city, although architect Jeffrey Heller expects the city will see a new era of highrise development in six to eight years.
"Within the Transbay development there will be some very tall buildings in the 600- to-1,200-foot range. This will be the next big thing," said Heller, whose firm worked on 555 Mission and 350 Bush.
Lowe Enterprises developed 500 Terry François, but CBRE Investment Strategic Partners is buying the building and was expected to close in the first quarter of 2008. The new owner is changing the building's positioning, emphasizing its environmental features. CBRE has applied for LEED certification that could render at least a silver rating. Going for gold was being considered.
"There is not a lot of office space where you can say there are beautiful, unobstructed views of the bay. There are bike paths outside our door where you can ride to the Ferry Building, and there is tons of housing near us at Mission Bay," said Meade Boutwell of CBRE who is handling the leasing. "We are positioning this as a destination office building."
Rising behind 500 Terry François will be two new buildings by Alexandria Realty Trust aimed at biotech users. No lab space will be available at 500 Terry François, but Boutwell said biotech firms in need of office space could be candidates. He doesn't see Alexandria's buildings as competition, but rather a needed addition to create critical mass in Mission Bay.
"We are looking at tenants from Silicon Valley to Marin to the East Bay who are looking to access quality employees. We would think a progressive user would be attracted, but these days many companies have changed and maybe an accounting firm could end up here."
Wave of Oakland investment
Dan Cushing, senior vice president of Brandywine Realty Trust, doesn't see his Center 21 project as an isolated project on the fringe of Oakland's downtown, and that is why he is confident of its ultimate success.
"There has been a $1 billion investment in a four-block area, and we're in the center of it. We are delivering the first piece, and the wave of investment will wash over us. I can't help but think all the new residential projects and retail will help our project," Cushing said. "The developments will create a 24-7 city, and this transformation is very exciting."
Brandywine's new building contains 215,000 square feet and sits tucked in the shadow of 2101 Webster St., which is 95 percent leased. It's an $80 million project that replaces the former Bermuda building that was red-tagged following the 1989 earthquake. By creating a new lobby plaza that connects both buildings, Brandywine has tried to make the two buildings seamless, although 2101 Webster was built in 1986. With glass on three sides, the new building has many green features and Cushing hopes for a gold LEED certification. It would be among California's first gold commercial office buildings.
Leasing efforts began in late 2007. The building is ready for occupancy now, but needs an anchor tenant.
"Our focus is to find an anchor who can take between 50,000 and 150,000 square feet," Cushing said. "Firms from San Francisco and out of the Oakland market are likely candidates, and we're hoping we can find our anchor and get the building leased sooner rather than later."