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.