Commercial real estate in 2021 – it’s time to get creative – The San Francisco Examiner

Courtesy of Cushman & Wakefield’s Marketbeat for the first quarter of 2021. 18.7 percent vacancy rate in San Francisco (compared to 6 percent in the first quarter of 2020); 7.87 million square meters of direct vacancy and 7.99 million sublet space. That’s nearly 16 million square feet of ghost town, representing a loss of more than $ 1 billion in revenue for an average asking price of $ 73.76 per square foot in the first quarter.

It’s bad, the product of the new COVID-borne labor revolution – and found money for businesses, free from bloated footprints and recognition for adapting to the new way of life. The possible long-term social effects of this commitment to isolation? This is a story for another time. At the moment we are faced with a puzzle: what are we going to do with all this empty office space?

It’s definitely an unusual time in the commercial real estate world, but lest we have forgotten that we are among the bad news of last year, we are an adaptable species. We take the hit, we evaluate the damage, we find out our reaction. Do you remember your first Zoom Happy Hour? Seemed weird at the time.

Last week I got a strange email from an investment firm promoting commercial real estate investments. “Strange timing,” I thought, but then I thought more. I googled a bit. Forbes also advertises commercial real estate. Someone feels good about it because, unlike those of us who have been trained to view office space as commercial space, there are many uses for commercial real estate in addition to placing dice for employees.

Companies are adapting and for them commercial real estate is an opportunity in times of crisis. but who will emerge and take advantage of it?

How about Amazon, which of course needs endless space for distribution centers? In a move stinking with irony, Amazon bought out dead malls – 25 of them since 2016. So far this year, Amazon has received approval to remodel nearly 4 million square feet of expired malls in Baton Rouge, Knoxville and Worcester, Massachusetts. But Amazon is unlikely to be able to retrofit our soaring finance towers in distribution centers. You’re too vertical.

Enter the life science industry. Yes, Amazon and Big Pharma will save us together with a small, old-fashioned manufacturing facility. Why did KKR, a private equity firm, pay just $ 1.1 billion for a building in Mission Bay that was 98.4 percent rented by Dropbox when Dropbox stepped out of the building in March last year had no intention of ever using the space? Because life science companies, in this case Vir Technologies and BridgeBio Pharma, have sublet lab and manufacturing space. You can’t make drugs through Zoom, and I don’t know if you’ve noticed, but drug making is on people’s minds right now.

We could always turn everything into apartments. It’s not a new idea – the modern SoMa was built on it – and there is great demand for it. However, it’s not that you wave a magic wand and suddenly solve the housing crisis AND the commercial crisis right away. Conversion is expensive. Someone has to pay for it and they will want to make a profit. Those office buildings have a view, you know.

After all, there is a feeling that companies will ultimately value the personal interaction of employees (and the affordable leasing rates) and get some of them back to work. Maybe they can revolutionize the workspace without sending everyone home.

It’s definitely a nervous time for commercial real estate, but it could also be exciting. There is no magic bullet to save the industry, but there are options that could ultimately create a city center with so many uses that the term “The Financial District” has become a charming anachronism.

Larry Rosen is a San Francisco-based writer, editor, podcaster, and former broker. He is a guest columnist and his point of view is not necessarily that of the reviewer. Market Musings’ property column is displayed every two weeks.

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