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San Francisco Business Times

June 18, 2012

Office developers scour for more square feet

By J.K. Dineen

Office development is making a comeback in San Francisco.

With downtown vacancies now under 9 percent and rents climbing into the mid $50s a square foot, developers are pouncing on land and redevelopment plays with an optimism not seen since 2006. On Howard Street, Tishman Speyer is digging the foundation on Foundry Square III, a $200 million speculative development. Around the corner at 222 Second St., Tishman Speyer is also looking at a late 2012 construction start date for a 450,000-square-foot, 22-story tower.

Meanwhile, developers are chasing two entitled downtown sites, 350 Mission St. and 535 Mission St., both of which are on the market. In another prime site for sale at 329 Brannan St., a former car wash that could work for either residential or commercial, large office developers have been outbidding the housing developers, according to project broker Daniel Cressman of Cornish & Carey Commercial Newmark Knight Frank.

Squeezing more out of properties

The new focus on ground-up development comes after a 12-month period when San Francisco has seen an extraordinary number of major renovations of existing empty structures, reviving zombie buildings that had been left for dead after the Great Recession. One by one, the city’s inventory of formerly obsolete or mothballed buildings are filling up, prompting landlords to invest hundreds of million of dollars in renovations.

At 888 Brannan St. in the South of Market, SKS Investments is investing $25 million to reposition a largely vacant wholesale jewelry center as headquarters of startup Airbnb, a shining star of the so-called “sharing economy” that has caught fire in San Francisco. Shorenstein Properties is investing $80 million to create a home for tech titan Twitter in the long-empty Western Merchandise Mart building at Ninth and Market streets, an art deco landmark that has been rebranded as Market Square and is also poised to become home to Yammer and One King’s Lane. Along the Third Street corridor, TMG Partners and Rockwood Capital are reinventing and expanding 680 Folsom St. with a new curtain wall skin, an $87 million project that has attracted tenants and Riverbed Technology. Shorenstein Properties added four floors to 188 Spear St. and has leased the bulk of the building to Amazon.

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