S.F. office rents drop 24%, sublease & direct space in competition
April 10th, 2009 Filed Under Financial District, South of Market, Tenant Activity
The San Francisco Chronicle reported this week that office rents have dropped in our great City 24% over a years time. This number is not surprising of course as we have seen a dramatic uptick in sublease space coming to the market, and some of that new sublease space is just that, brand new space.
In a traditional sublease scenario the current tenant (sublessor) is leaving space behind that may be old and dated, it may have a shorter term on it, or the sublessor may be in financial trouble and unable to offer tenant improvement dollars. In today’s market however there are plenty of financially viable tenants putting excess, newly built out space on the market. This newly built space with term left on the existing lease, despite being a sublease, can look and feel like a direct lease with the landlord.
What this does is undercut the landlords leasing efforts on their direct space because now the direct and sublease spaces are comparable. To a tenant seeking a new location there is no difference potentially between the two opportunities in the same building, thus leading to the landlord having to drop their asking rate dramatically to compete with the sublease asking rate. It also forces [More...]
