San Francisco's Central Market booms
AN office shortage in San Francisco's traditional technology district is aiding the revival of a blighted neighbourhood known as Central Market, as young companies migrate to a new hub with fast-growing rents.
Asking rates on Market Street between Fifth Street and Van Ness Avenue – northwest of the popular technology area called South of Market – jumped 18pc in the second quarter from a year earlier to an average of $46.48 a square foot, data from brokerage CBRE show.
Internet firms have driven gains, with mobile-payment service Square moving this month to a converted bank data centre.
The once-bleak stretch of empty buildings has had $2.4bn in development and property sales since 2011, including projects by Hudson Pacific Properties, AvalonBay Communities and Shorenstein Properties, according to CBRE.
San Francisco's surging job growth and scant new office supply sparked the renewal, along with a 4.4pc vacancy rate in South of Market that constrained growth there with offices such as the Transamerica Pyramid (left).
"We knew there was going to be overflow, but nobody thought it would be like this," said Victor Coleman, chairman and chief executive officer of Los Angeles-based Hudson Pacific, the landlord at 1455 Market St – the 1 million-square-foot data centre that lured Square as an anchor tenant.
"This situation is pretty unique." The vision of Market Street as a "grand boulevard" dates to San Francisco's earliest days under US control in 1847, said Anthea Hartig, executive director of the California Historical Society.
An "urban cacophony" reigned on the city's pre-eminent thoroughfare for almost a century with four sets of streetcar rails and ornate theatres and restaurants lining both sides.
Television, automobiles and suburban flight took their toll by the 1950s, leading to a long decline.
Now, quoted rents of $55 a square foot at that building and $57 a square foot at Shorenstein's Market Square, a former furniture mart where Twitter moved last June, have soared to levels similar to those in South of Market.
In both properties, floors spanning a city block allowed for creative conversions with abundant common areas and value-added amenities.
Shorenstein's renovation plan for the mart, a 1930s Art Deco landmark, followed quickly by Twitter's lease, boosted investor confidence in Central Market and set the stage for the resurgence that also includes 4,500 new housing units and retail development close to Union Square, the city's marquee shopping area, according to city Mayor Edwin Lee.
Twitter is paying $30 a square foot for 210,000 square feet and a $55 rate for an additional 85,000 square feet. The company also has exclusive use of a roof deck. At 1455 Market, Square is paying $39 a square foot on average for 330,000 square feet.
The new offices are more than four times larger and offer "an open, collaborative space, a roof deck, chef's kitchen and other amenities," Square said.
Central Market's office vacancy rate was 14pc in the second quarter, down from 25pc in the first quarter of 2011, before the Twitter lease and Market Square renovation, according to CBRE. About 515,000 square feet of the district's 3.7m total was available for rent as of June 30.
San Francisco's April 2011 enactment of a payroll-tax break for companies that relocated to certain Central Market properties included Twitter's building and spurred other technology tenants to follow, said Oz Erickson of Emerald Fund, a locally based housing developer. The benefit encouraged development of nearby properties as investors anticipated spillover demand, he said.
Across the US, the technology industry is growing at four times the pace of the broader economy, Jones Lang LaSalle said last month. San Francisco ranks as the nation's top technology office market, based on factors such as job growth and venture-capital funding, the brokerage said. (Bloomberg)