Yet most credible experts who track the complex world of office square footage contend that the region’s future looks promising.

How to explain that contradiction?

“I get that question from friends and business folks every day. I can’t get through a day without hearing it,” said John Frisch, regional managing director of commercial real estate brokerage firm Cornish Carey Commercial Newmark Knight Frank.

Last month, Cornish Carey reported that the Sacramento region’s office vacancy rate in this year’s first quarter hit an all-time high of 23.74 percent, equating to nearly 16 million square feet of vacant space. In 2002, the rate for the whole year was 12 percent.

The first-quarter numbers are the echo of the recessionary hammer that smashed the area’s commercial real estate market in 2008.

However, Frisch cheerfully expects “the office market to get better as the year unfolds.”

And Encino-based Marcus Millichap Real Estate Investment Services’ 2012 annual report also projects an office market turnaround in Sacramento this year.

The optimism lies in the ocean of numbers that’s an industry staple and the sometimes agonizingly slow pace of completing office building/leasing deals.

“We have not seen a tangible improvement in the region in years,” Frisch said. “However, the precursor to any changing in the vacancy rate is leasing activity in the market.

“And right now, we’re seeing better activity in the market than we were seeing six or 12 months ago.”

Frisch explained that it’s not unusual for deals to take six to nine months ? a timetable starting with prospective tenants looking around and ending when they finally move in. As a result, the recent bump up in office leasing might not show up on the region’s statistical radar for another year.

While the process is slow, Frisch said: “I don’t know if there is a better indicator for our local economy than office space vacancy. ? It’s pretty basic. When vacancy is high, things are bad. When it’s low, you have almost full employment.”

Local brokers also stress that it’s a mistake to view the Sacramento region as a monolith. Submarkets in the region are seeing widely varying degrees of progress, or disappointment.

Voit Real Estate Services’ first-quarter regional report for 2012 showed an office vacancy rate of 50.2 percent in the Rio Linda/North Highlands submarket. In downtown Sacramento, it was 10.1 percent.

There are also variations within the submarkets.

Robb Osborne, a senior vice president leading a team of brokers in Voit’s Roseville office, noted that the first-quarter vacancy rate in the Roseville/Rocklin market was 27.4 percent, but that number was affected by a 40-percent-plus vacancy rate along the Highway 65 corridor.

Prior to the recession, numerous high-end office buildings were built along Highway 65, reflecting the area’s economic boom. In the recession, much of that office space went empty.

The high percentage of office vacancies is an advantage for businesses looking to lease or buy.

“We have lost (clients) if they are price-sensitive,” Osborne said. “And right now, everybody is price-sensitive. They’re looking for the best deal.”

Cole Sweatt, an assistant vice president and broker in Voit’s Roseville office, said cost now outweighs all other factors: “In downtown Sacramento, parking has long been an issue, but now, everybody is looking for cheaper rent.”

Osborne and Sweatt characterized Roseville as a microcosm of the local office industry’s ups and downs.

The Voit team marketed the recent sale of the Eureka Corporate Center at 1544 Eureka Road in Roseville ? a modern-looking complex of gleaming offices with panoramic views. The complex wanted for tenants and was taken over by its lender.

Expansive second-floor offices that once housed Orange County-based John Laing Homes ? which filed for bankruptcy protection in 2009 ? lie empty. Sweatt expects the new buyer to fill the empty space with attractive lease offerings.

By contrast, a short drive away are twin office buildings at 3721/3741 Douglas Blvd. Of the 90,000 square feet of deals made by real estate firm Hines last year, about 50,000 were in the 3721/3741 buildings. Hines, which has offices at 400 Capitol Mall in Sacramento, owns about 850,000 square feet of space it’s looking to lease on the busy Douglas Boulevard corridor.

In 2011, Osborne’s Voit team completed 20 office sales totaling 186,000 square feet and 31 office lease transactions comprising 110,103 square feet.

Still, Osborne and Sweatt characterized the current environment as tough ? Osborne believes brokers will be swimming uphill for another year or so ? yet both see indicators of improvement.

Sweatt pointed to a rejuvenated San Francisco/Bay Area business/tech market: “We’re hoping that some of those (companies) will expand or relocate here.”

Osborne said a bump up in residential real estate in and around Roseville was a good sign “that if people are buying a home, they’re probably looking to stay in business.”

Osborne said dovetailing trends in the residential real estate and office markets are producing similar results: Buyers are picking up troubled assets for a comparative song, helped by low interest rates. Those picking up office buildings for a low price can better afford to “undercut” the market to lure tenants, charging square-footage rates well under competitors’ rates.

This creates another trend: Tenants being poached from other buildings with attractive offers.

Frisch said it’s all part of the game: “When Class A space drops to Class B levels, it’s a great opportunity to move up. When prices get really, really good, people who want to get into whatever trophy building there is can afford to move up.”

Frisch said attractive pricing is likewise contributing to leasing activity.

“Now for the first time in years, we are seeing people considering expanding instead of just hunkering down for a year or two to see which way the wind blows,” he said.

Frisch said that includes his own Cornish Carey firm.

“For the last four years, we have extended our lease two years at a time,” he said. “Now, we’re seriously considering expanding and relocating next year.”

Cornish Carey has two local offices ? about 7,500 square feet in Sacramento and 4,500 square feet in Roseville.

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Article source: http://www.sacbee.com/2012/05/27/4517394/sacramento-area-office-brokers.html

San Francisco-based Savoy Corp. sold three buildings totaling nearly 88,000 square feet at 5330 Old Redwood Hwy., 1341-1353 Redwood Way and 1363-1367 Redwood Way to PBJ Acquisitions, LLC, in mid-June for $5.1 million, or about $58 a square foot. Savoy had the property listed for $6.5 million.

One of the former Savoy buildings in Petaluma

Formed in March, PBJ is an investor in value-add Northern California properties, according to Bill Sumski, a San Francisco real estate attorney who has also been involved in major Bay Area redevelopment projects and worked with PBJ. Tony Crossley and Tim Maas of Colliers International San Francisco Investments represented Savoy the recent sale.

“We want to leverage off the good momentum in the Petaluma marketplace,” Mr. Sumski said. “There is opportunity to take advantage of the increase in occupancy and increase in rents. Generally, we’re buy and hold.”

The investors are looking for continued northern migration of companies from southern to northern Marin County to Petaluma, he said.

Haden Ongago and Mark Carrington of Cornish Carey Commercial Newmark Knight Frank are marketing the properties, which are 65 percent occupied. Significant tenants are Union Bank, Broadcom and Computer Associates.

Savoy sold a 34,000-square-foot building at 1445 N. McDowell Blvd. for about $2 million in July 2010. Savoy sold it and a 62,000-square-foot San Francisco office building to Rona Real Estate, LLC, for a total of $15 million.

***

Petaluma commercial real estate experts have been expecting the string of large leases and property sales to company owners to bring down the very high office vacancy rate, and the latest figures bear that out.

Nearly 228,000 square feet of Petaluma office space came off the market in the 12 months ending in June, according to new figures from Keegan Coppin. Together with nearly 19,000 square feet of net space absorption over the period in Santa Rosa, net absorption countywide was 184,3oo square feet.

Over the 12 months, the office vacancy rate countywide fell more than a percentage point from a high figure of 23.8 percent to a still high 22.4 percent at the end of June, according to the brokerage.

The Petaluma office vacancy rate fell nearly three percentage points to 30.9 percent at the end of the second quarter with 970,000 square feet available from 33.8 percent for 1.06 million square feet vacant.

Cornish Carey Commerical Newmark Knight Frank reports that Sonoma County had 123,000 square feet of class A office space net absorption in just the first half of this year, with a net of 43,000 square feet coming off the market in Petaluma and nearly 60,000 square feet in Santa Rosa.

Little of the net leasing activity this year has been for class B office space, which makes up roughly half the 8 million-square-foot Sonoma County market, the brokerage reported. Net absorption was negative 14,000 square feet for that class of space.

The Sonoma County industrial market fared far better over the past 12 months, according to Keegan Coppin. Thanks to net space absorption of 217,000 square feet in Petaluma, 209,000 square feet in Santa Rosa and 185,000 square feet from the Sonoma County Airport-area business parks north, the county’s major industrial markets had 585,000 square feet less space available for lease than a year earlier.

In just the past quarter, the countywide industrial vacancy rate fell to 12.2 percent from 13.4 percent when the first quarter ended, the brokerage reported.

In Petaluma, the change in available industrial real estate to lease was dramatic. The vacancy rate fell to 12.4 percent for 662,000 square feet available at the end of June from 17.5 percent for 940,000 square feet vacant, according to Keegan Coppin.

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Topics: Commercial Real Estate 7-18-2011 | Categories: Commercial Real Estate, Industry News

Article source: http://www.northbaybusinessjournal.com/36513/commercial-real-estate-savoy-sells-three-petaluma-buildings/

“San Francisco jumped to the No. 1 position in the country” for office real estate performance, said Colin Yasukochi, vice president of research at Jones Lang LaSalle and author of one of the reports. “Technology companies are the underlying driving force in the San Francisco market. It’s recovering very quickly” from the economic downturn.

He shows the city’s average asking office rent at $40.06 per square foot, up from $33.71 a year ago.

Over the past four quarters, about 1.3 million square feet of space was absorbed by tenants, “the best four quarters since 2008, which was the peak of the market,” Yasukochi said. While the vacancy rate overall is still a relatively high 16.2 percent, in hot neighborhoods such as South of Market, it’s only 6.9 percent, he said.

Chris Macke, senior real estate strategist for research firm CoStar Group in Washington, agreed that San Francisco is bouncing back.

“You folks have seen steady rental-rate increases for effectively every quarter since early 2010, whereas nationally they’re still having rental-rate decreases,” he said. “In the second quarter, San Francisco had the largest rental-rate increases, going up 4.4 percent compared to the first quarter. That’s very, very strong, far better than anywhere else in the country.”

Part of the dynamic is that San Francisco tends to be volatile, as supply is constrained for the most sought-after, higher-quality “creative” spaces. “It’s a market that is prone to greater increases and decreases; it acts like a tightly wound rubber band,” Macke said.

Bright outlook

The San Francisco metropolitan area, which includes San Mateo County, was also on top for rent increases between the first and second quarter in a report from research firm Reis.

“I think the outlook for San Francisco is relatively bright,” said Ryan Severino, an economist at Reis. “We expect to see fairly robust rent growth there this year.” Both Oakland and San Jose metro areas also are benefiting from increased office demand, Reis found. It ranked San Jose fourth in the nation for rent increases and the East Bay ninth.

Tech firms increasingly are branching out from SoMa into downtown, previously the domain of more traditional companies.

‘The hustle and bustle’

“We like the hustle and bustle of the Financial District,” said Alex Mehr, co-founder and co-CEO of online dating site Zoosk Inc., which signed a lease in the second quarter for 21,391 square feet at 475 Sansome St. It already was subletting the space from Yahoo.

“Software companies prefer SoMa because they hire a lot of Java developers who live in the South Bay and so (being near) Caltrain is an advantage,” Mehr said. “But we’re a Web company and our developers live in San Francisco, so the Financial District is a much easier commute for them.”

Zoosk went from about 20 employees 18 months ago to almost 90 now. Mehr expects the staff to double annually, so the company will soon outgrow its current location. Rising rents don’t concern him too much.

In the heart of the city

“The advantage of being in the heart of San Francisco with quick access to BART and having all that action all around us outweighs any increase in prices,” he said.

Meade Boutwell, senior vice president with broker CB Richard Ellis, recently represented a downtown building that remodeled a 3,000-square-foot space specifically to lure tech tenants.

“The Mills Building at 220 Montgomery is one of the oldest buildings downtown, it’s a classic that survived the 1906 earthquake,” he said. “It’s class B space with traditional dropped ceilings. We tore out the ceilings, exposed the raw concrete, brick and piping, which made it very creative-looking. The tech tenants that all wanted SoMa in 2000 said they loved the feeling of the space; we had nine offers.” A tech company leased the space for $41 per square foot, a premium from its $35 asking price. Now the owner plans to do a similar rehab elsewhere in the building.

Executives at Starwood Property Trust, a real estate investment trust based in San Francisco, said they are bullish on the city.

“San Francisco has held up better than most markets,” said Chris Tokarski, managing director and chief credit officer. “In particular the tech growth is creating more pressure and space is leasing up quicker. You can say that about apartments, retail and office. It clearly is seeing growth on all fronts.”

E-mail Carolyn Said at csaid@sfchronicle.com.

This article appeared on page D – 1 of the San Francisco Chronicle

Article source: http://www.sfgate.com/cgi-bin/article.cgi?f=/c/a/2011/07/08/BUUK1K7QG3.DTL&type=tech

To know one big reason why, ask Wayne Koniuk. By trade, Mr. Koniuk fashions artificial limbs for amputees. By habit, he fits prostheses at no charge for people who cannot pay. This has left him a less-than-wealthy man.

But he does have one substantial asset: a Divisadero Street building that his father, Walter, an orthotist, bought in 1970 and gave to his only son in 2001 so Wayne could run his business on the ground floor and Wayne’s adult children would always have a place to live.

“For eternity,” Mr. Koniuk recalls his father saying, “my grandkids will always have a place they can go. No matter whatever happens, that building should stay in the family.”

Mr. Koniuk, who himself lives in suburban Belmont, gave a half-interest in the building to his older son in 2007 so he could evict a tenant and move in himself. But under San Francisco’s extraordinarily pro-tenant housing laws, landlords can do this only once per building.

So while Mr. Koniuk desperately wants to move his younger son into the building’s other four-bedroom apartment, he cannot. He is exploring legal options. Robert Murphy, who has lived there for 30 years without a lease, remains, paying $525.82 a month.

Last spring, Mr. Koniuk offered Mr. Murphy $45,000 to move out. Mr. Murphy’s lawyer demanded $70,000, a sum Mr. Koniuk says he does not have. Meanwhile, the city’s Rent Board notified Mr. Koniuk that he was allowed to increase Mr. Murphy’s monthly rent this year by $2.63.

Mr. Murphy did not respond to several phone messages left over a two-week period. Harold Jaffe, the lawyer who wrote the demand letter, said he no longer represented Mr. Murphy.

Increasingly, small-time landlords like Mr. Koniuk are just giving up. One of his Divisadero Street neighbors has left two large apartments on the second and third floors of her building vacant for more than a decade, after a series of tenant difficulties. It’s just not worth the bother, or the risk, of being legally tied to a tenant for decades.

“Vacancy rates are going up because owners have decided to take their units off the market,” said Ross Mirkarimi, a progressive member of the Board of Supervisors. He attributes that response to “peaking frustrations in dealing with the range of laws that protect tenants in San Francisco that make it difficult for small property owners to thrive.”

Perversely, that is hurting the city’s renters as well, as a large percentage of the city’s housing stock is allowed to just sit vacant, driving up rents that newcomers pay for market-rate housing.

San Francisco is a notoriously tough city for small-time landlords. “It is the dream of every landlord to be a landlord in the most lucrative market in the country,” said Ted Gullicksen, head of San Francisco’s powerful Tenants Union. “There’s no sympathy whatsoever.”

Without strong protections, tenant advocates say, only the wealthy would be able to afford to live here. Countless longtime residents, especially the elderly, would be out on the streets.

This is a consensus view in many circles, as illustrated by a recent feature in The San Francisco Chronicle. “Throwing senior citizens out on the sidewalk is never a good idea, but it isn’t stopping North Beach developer Peter Iskander,” it began.

Left unsaid was that one of the article’s featured characters, Carlo Tarrone, pays $450 a month in rent. Or, more significantly, that Mr. Tarrone in 1999 bought (half in cash) a two-unit residential building near Telegraph Hill that the real estate Web site Zillow values at $1.7 million. Mr. Tarrone, whom I interviewed by phone, is by no means poor or facing homelessness.

Mr. Koniuk is not a slick developer who aims to toss widows and orphans into the street. He could sell, but he does not want to. He wants to honor his father’s wishes and allow his own sons to live in his own building.

“My name is Koniuk. My sons’ name is Koniuk. My father’s name was Koniuk,” he said. “We should be able to move them into a building we own.”

estevens@baycitizen.org

Article source: http://www.nytimes.com/2011/05/01/us/01bcstevens.html

Surprising news out of the census: San Francisco had 30,000 empty homes in 2010, reports Blanca Torres of the San Francisco Business Times. That’s an 8.3 vacancy rate, higher than the state average, and higher than any other county in the Bay Area. 

Torres asks the question that’s no doubt on everyone’s mind: “As many people who have moved to the City by the Bay can attest, finding housing here can be challenging whether you are renting or buying — and it’s not just the cost factor. I have to wonder why there are not fewer vacant units considering the high demand and seemingly tight supply. Who are these property owners holding the keys to empty homes?”

Marin County had the next highest vacancy rate at 7.2 percent, followed by Alameda County and Contra Costa County. Silicon Valley had the lowest vacancy. 

So what’s causing this high rate of vacancy in what is considered one of the most desirable cities to live in? According to Torres’ follow-up piece, possible explanations offered by Biz Times readers include: people waiting for a better real estate market to sell, people owning homes in San Francisco for investment or vacation purposes, and finally, landlords who are fearful of renting to bad tenants, given the tough protections for renters in the city.

Article source: http://www.baycitizen.org/blogs/pulse-of-the-bay/sf-leads-bay-area-vacant-homes/

SANTA MONICA, Calif.—Office occupancy rates in this seaside city have soared in an otherwise lackluster Los Angeles market, fueled by an entertainment-industry expansion. The move is part of an uneven recovery in the property market benefiting certain pockets of cities and metropolitan areas.

Santa Monica’s office-vacancy rate fell to 11.5% in the fourth quarter, from 14.3% in the same period a year earlier, while vacancies for overall Los Angeles County remained at a recessionary peak of 17%, according to estimates by Grubb Ellis Co., a real-estate-brokerage firm based in Santa Ana, Calif.

Santa Monica’s vacancies peaked at 16.2% in …

Article source: http://online.wsj.com/article/SB10001424052748703566504576202653863244690.html