REAL ESTATE NEWS

Led by a bevy of large tech deals, office leasing volume in San Francisco has surged to a 10-year quarterly high of 3.4M square feet for the first quarter of 2025, a report from Savills finds.

Adding momentum to an emerging office recovery, the total availability rate in the market dropped to 35.6% in Q1, a 100-bps decline from the previous quarter.

Office Leasing volume increased for the fourth consecutive quarter, with two of the largest deals in Q1 involving Google, including a 430K-square-foot renewal and expansion at 345 Spear Street and a 274K-square-foot renewal at 215 Fremont Street, Savills reported.

The top five leases in the first quarter included JPMorgan Chase’s 280 K-square-foot renewal and expansion at 580 Mission Street, Lyft’s 163K square foot renewal at 185 Berry Street, and Databricks’ relocation to a 150K square foot space at 1 Sansome Street.

Demand from occupiers is projected to increase as office return rates rise and tenants flock to top-tier buildings in prime locations. The Financial District has the highest average rents in San Francisco, with the north part of the district averaging $70.17 per square foot and the south portion averaging $72.17 per square foot.

With interest rates expected to remain high, a shakeout from last year’s malaise in the city’s office market is expected to continue in the form of lender-facilitated sales and deed-in-lieu of foreclosures.

Lenders last week tapped Newmark to list a $187.5M loan backed by the KPMG Building, a 380,000-square-foot office tower at 55 Second Street. The asking price is expected to be in the mid- to high $300-per-square-foot range, valuing the loan at about $140M, according to a report in the San Francisco Business Times.

Canada Life Assurance originated the loan in 2019 for the 25-story building’s current owner, Paramount Group. The $187.5M loan matures in October 2026, a month after anchor tenant KPMG is due to relocate from its 140K-square-foot space in the building to a new office at 505 Howard Street.

Manhattan-based Paramount last year wrote down its investment in 55 Second to zero. Paramount acquired a 44% stake in the KPMG Building for $402M, about $1,057 per square foot, in 2019.

The company has zeroed out two other big-ticket office acquisitions it made in San Francisco in 2019, including its $722M purchase of the 745,000-square-foot Market Center and the 293,000-square-foot 111 Sutter, which it bought for $227M.

In February, San Francisco-based business leaders in a survey of 100 companies, each with $50M or more of annual revenue, said most of their firms are planning to increase their office footprints in the city during the next 12 to 18 months.

Three-quarters of the execs surveyed by KPMG, all of whom are at the vice president level or higher, said they would expand their offices in San Francisco as they push for more in-person work and grow headcount.

Nearly 80% of the respondents said they are aiming to bring employees back to in person work more frequently, and 66% said they plan to increase headcount this year.

Source: GlobeSt/ALM