Third Quarter 2009-Market Overview

The big news on the Corridor is that the 60 or so Cathedral Hill office-building tenants were finally given notice to vacate their offices by the end of 2009. The hotel is also scheduled to close by the end of October 2009. This provided a much needed increase in activity on the Van Ness Corridor. A City Planning Committee meeting is scheduled for October 15, 2009 to take public testimony on the CPMC Institutional Master Plan. You can view the Master Plan on the San Francisco City Planning website http://www.sfgov.org/site/planning_index.asp The office vacancy is up slightly with the average rents down by about 20%. Sellers are dropping their prices to try to produce some offers and new development is non-existent.

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Office

The office vacancy rate including sublease space is 10.1%, which is a .4% increase from last quarter. The average rents for all office buildings for all classes of office space dropped substantially from $26.28 to $21.03 psf. All the tenants at the Cathedral Hill Office Building were given notice to vacate by the end of 2009. This displaced over 60 tenants ranging in size from 500-2500 sf to scramble for new offices over the Van Ness Corridor and beyond. This has provided a nice spike in leasing activity for the owners in the area. 625 Polk Street which has been on the market for months is asking $9.50 psf NNN for its 78,000 sf feet of sublease space at the old Culinary building. 1233 Van Ness Avenue just put on 6000 sf of space at $18.00 psf. 1415 Van Ness has a 6000 sf sublease at 99 cents per month. 1557 Pine is marketing a 2000 sf space at $1.00 psf.

Retail

The retail availability is now at 171,217 sf, which equates to a vacancy rate of 4.3% on the total inventory of 2,880,690 sf. A late-night comedy club received approval from The City to open in the AMC Theater building at 1000 Van Ness Avenue. Holly’s plans to serve drinks and meals, including breakfast, with entertainment until 4 a.m. on Fridays and Saturdays. Overall asking rents are ranging from $1.00 sf NNN on the side streets to upwards of $4.17 on Van Ness Avenue to higher rates on Polk Street of $5.00 psf NNN. 810 Van Ness has had their 1251 and 1097 sf spaces on the market for quite sometime and are holding their rates at $3.50 psf NNN. A space of 885 sf at 1452 Bush Street just dropped their rate from $2.50 to $2.00 psf NNN. 752 Post Street dropped the rate to $2.50 psf for their 779 sf space.

Residential Development

How about there is no residential development! Developers trying to sell their sites cannot give them away. 77 Van Ness Avenue, a new mixed-use condominium project is selling units with a one-bedroom unit on the 6th floor of 840 sf with an asking price of $568,773 ($677/sf). A few units are for sale at Daniel Burnham Court, 14th floor 2-bedroom unit of 1009 sf at $669,000 ($663/sf) and 2^nd floor 1-bedroom unit of 745 sf at $449,000 ($602/sf).

Investment

They could not lease it, so the 15,000 sf vacant building at 1350 Van Ness Avenue is on the market to sell with an asking price of $3,350,000. 1335 Larkin Street auto body garage on 7837 sf of land is on the market at $3,400,000. A 15-unit apartment building at 2725 Van Ness Avenue is priced at $6,000,000 with a cap rate of 3.08% or $400,000/unit. 1636 Bush Street a 2498 sf Victorian office building that has been on the market for many months has dropped their price by $200,000 to $1,695,000.

Jeffrey J. Hutchins

Vice President

Realty Investments

One Daniel Burnham Court

Suite 205c

San Francisco, CA

USA 94109

Tel: 415.776.1177

Fax: 415.776.4084

Jeffrey-hutchins@comcast.net

DRE Lic. #943179

Realty Investments Market Report-San Francisco's Van Ness Corridor

Second Quarter 2009-Market Overview

Overall activity on the Van Ness Corridor is marginal. While the office vacancy is up, the average rents are mysteriously up by a fraction. A few new retail vacancies are appearing on Polk and Union Streets. While there is limited leasing activity, a number of the well-located spaces are being leased. The newest condominium development at 77 Van Ness Avenue has opted to successfully go the sales route as opposed to a few other projects that have chosen to go rental. Investment sales activity is basically non-existent, with buyers reluctant to proceed on any purchases. 1285 Sutter Street, the approved development site dropped their asking price from $18M to $8M to try to attract a buyer. Academy of Art is finalizing the renovation of their Van Ness Avenue building and Polk Street is continuing with their beautification program by adding a few palm trees.

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Office

The office vacancy rate including sublease space is 9.7%. This is a jump of almost 2% from a 7.9% vacancy rate last quarter. The average rents for all office buildings for all classes of office space are $26.28, which is surprisingly up by about 50 cents psf from last quarter. Like the economy, activity is sluggish, with Class A space rents in the low $30.00 psf to upper $30.00 psf range. Vacancy of individual class A buildings range from 4% at Daniel Burnham Court to 12% at 1700 California Street. 77 Van Ness Avenue, the new mixed-use project is close on a number of office lease deals in the $28.00 psf range. 1375 Sutter Street, owned by CPMC is currently off the market while they seek approval to convert the 100,000 sf building to a Medical Office Building (MOB). 

Retail

The retail availability is now at 154,967 sf, which equates to a vacancy rate of 4.3%. The various main streets such as Polk and Union Streets and the side streets are seeing new retail availabilities. Overall asking retail rents on the Corridor are $2.00-$5.00 psf NNN rate. 1130 Post Street, the old Circuit City Building has a 8,522 sf fully fixtured day spa facility for sublease at $2.50 psf NNN with CAM/Tax at $1.02 psf. The Sprint space of 3000 sf at 928 Van Ness is on the market at $4.17 psf NNN. 1651 Polk Street near Clay has 1000 sf at $3.75 psf NNN and 1423 Polk Street near California Street has 1400 sf at $2.00 psf IG. 1954 Union Street has 1400 sf at $5.00 psf NNN. 1160 Post Street is undergoing a renovation to open up a new restaurant.

Residential Development

The Artani Condominium project in the 800 block of Van Ness Avenue continues its rental program of its 52 residential units. 77 Van Ness Avenue, a new mixed use condominium project decided to go the sales route as opposed to rentals and have seen good activity with apparently 10 residential units in contract. There is a one-bedroom unit on the 4th floor of 949 sf with an asking price of $499,974 or $527 psf. They will shortly be putting on the market 10 below market units. 

Investment

950 Van Ness Avenue, a 16,680 sf site with 44,000 sf building is back on the market at $8,950,000. 271 Austin Street, a small fully renovated Victorian office building of 3,250 sf is for sale at $1,895,000. 1285 Sutter Street, the approved development site dropped their asking price from $18M to $8M. 131 Fell Street, a 2-story auto body building on a site of 4,948 just sold for an undisclosed price. They were asking $2,300,000.

Polk Street Improvements

New palm trees being planted on Polk Street between Post and California Street.

Price drops from $18M to $8M for Van Ness Residential Development Site

If anyone wants to buy a residential development site, 1285 Sutter Street is still on the market and they dramatically dropped thier price from $18M to $8M. This is fully entitled on 21,330 sf of land and will be comprised of a 12-story mixed-use building containing 106 residential units and 15,800 sf of commercial space pre-leased to Trader Joes.

New Office Lease In Marin!

Just completed negotiating a new lease for a client for new offices in Larkspur Landing. They relocated from Alameda.

First Quarter 2009-Market Overview

San Francisco’s Van Ness Corridor is chugging along like a Ford Model T. Office and retail vacancies are up, but less than downtown. The increased vacancy/economy has helped to soften the market rental rates, but not dramatically for direct space. Medical type buildings have been more resilient to the market conditions. A few smaller retail leases being completed show some entrepreneurial optimism, but have been over shadowed by the demise of Circuit City and Crunch Fitness which has brought 60,000 sf of space to market. Condominium developments are opting to go the rental way as opposed to the sales. These types of markets can bring about exceptional opportunities, especially for cash buyers, tenants with leases rolling and creative property owners.

Office

The office vacancy rate including sublease space is 7.9%. The average rents for all office buildings for all classes of office space is $25.74. Activity is slow, with Class A space rents in the low $30.00 psf to upper $30.00 psf range. 2001 Van Ness Avenue just put the 3rd floor of their building on the market-10,000 sf at $30.00 psf. The new condominium project at 77 Van Ness Avenue has set their asking rents for the 21,000 sf of commercial space in the high 20’s psf and are seeing some activity. Laramar Property Management signed a 2 year lease for the ground floor quasi retail/office space at 1500 Franklin@Bush-3400 sf at $29.00 psf fully serviced.  A sublease on the 2^nd floor of 1415 Van Ness Avenue dropped their rate to 99 cents psf/mth.

Retail 

Crunch Fitness space at 1000 Van Ness Avenue went dark bringing on 28,000 sf on the 3^rd/4th floors and Circuit City’s demise at 1200 Van Ness Avenue brings to market 20,000 sf on the ground floor and 10,000 sf on the 2^nd floor. The retail availability is now at 154,416 sf, which equates to a vacancy rate of 3.2%. Overall, retail activity has been slow. A few highlights include Allure Medical Mobility & Medical Supply-851 Van Ness (1895 sf) and Phil’z Coffee-748 Van Ness (749 sf-$2.50 psf NNN). Asking retail rents on the Corridor have softened with rates in the $2.50-$4.00 psf NNN rate. 1336 Van Ness has a space on the market of 2588 sf at $2.50 psf NNN and 748 Van Ness has one remaining space-779 sf at $3.00 psf NNN. 928 Van Ness has 3000 sf at $4.00 psf NNN and 77 Van Ness has 2 spaces of 800 and 1200 sf at $4.00 psf NNN. 2 gas stations at the lower end of Van Ness @ Union and Van Ness @ Filbert are closed up.

Residential Development

Much to the dismay of the San Francisco Heritage Society, a 70 unit, 13-story residential condominium tower was approved for the site located at Bush and Franklin currently occupied by Cars Dawydiak. Sunrise Senior Living has closed their California Street sales office for their 1800 Van Ness 60 unit senior housing project. The site is currently being used as a parking lot. 77 Van Ness has not brought their residential units on the market yet. The question of the day for them will be “for sale or for lease”?

Investment

1500 Franklin Street is on the market at a sales price of $3,600,000 for the 13,774 sf 3-story building. 1336 Van Ness Avenue, a 2,588 sf, 2 story building is priced at $1,500,000. Both of these properties are also for lease. If anyone wants to buy a residential development site, 1285 Sutter Street is still on the market. This is  fully entitled on 21,330 sf of land and will be comprised of a 12-story mixed-use building containing 106 residential units and 15,800 sf of commercial space pre-leased to Trader Joes.