• Bay Area

San Francisco Tenant 360 – How Will Corporate Tenants Navigate a Volatile Market

 

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Three Drastic Swings
San Francisco is the most volatile office market in the United States. This volatility is evident by drastic swings in 3 commercial real estate benchmarks: Office Vacancy Rate / Supply, Corporate Tenant Demand and Rental Rate Pricing.

” Extreme pricing fluctuations and corresponding negotiation leverage swings often put the San Francisco corporate tenant at risk, as the office tenant’s space solutions don’t always align with business objectives. Unmitigated, this disconnect can negatively affect the company’s financial health. “

A tenant, for instance, who must enter the market out of the need for expansion space or because of a lease expiration date near a peak market could find itself in financial harm’s way. Namely, a potential doubling in monthly rent spend, limited or no contraction options and high construction costs to improve space can all strain a company’s business plan.

The illustrations below provide a historical perspective:

 

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Tenants in the Market: Pondering Longer
To further elaborate on this point, Cushman & Wakefield’s Tenant in the Market List indicates that so far in 2016 , tenants spent an average of 245 seeking an acceptable commercial space solution.

In 2015, the average time was reduced substantially to 219 days; which was preceeded by only 108 days in 2014. Clearly, today’s tenants are pondering their commercial space decisions longer.

The chart below suggests that San Francisco’s corporate tenants are paying closer attention and taking longer to make these impactful leasing decisions. The corporate tenant is becoming more risk averse. We predict that moving forward, the aggregate time spent making these critical leasing decisions will thusly increase by up to 15 % as we move into 2017.

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How the San Francisco Office Leasing Market Really Works

San Francisco’s average office rent and the NASDAQ have trended
together for 20 years now. This comparison……………………

 

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Back to the Future
What does the future hold for San Francisco office tenants and how will you (the corporate tenant) navigate this correcting market?

“Landlords are seeking to maintain peak market pricing and lock-in longer
term leases, while San Francisco office tenants are trying to avoid the same. The data demonstrates that this dichotomy has led to a leasing stalemate due to hesitancy for compromise from both sides.”

Getting to the market early to explore all potential occupancy solutions will yield the best, fully-informed outcome that supports your company’s business goals.

 

This article is presented by Cushman & Wakefield’s Tenant Representation Team. For more information, please contact Kevin Brennan – kevin.brennan@cushwake.com

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