SF office landlords boost commissions, offer a Cabo break as market softens

San Francisco office landlords are handing out perks including higher commissions and even a Cabo vacation to avoid cutting rents amid a stubbornly soft market.

Brokers who bring potential tenants to a 316,000-square-foot office building in the South of Market area get a dim sum lunch and a $100 gift certificate to the upscale Harborview Restaurant & Bar, according to the San Francisco Business Times. The building’s owner will also pay tenant representatives an annual broker fee of $3 a square foot over the term of the lease, $1 more than the industry standard.

“We have two large blocks of space coming up,” said Anchor Pacific Capital’s Anton Qiu, a landlord advisor helping with marketing efforts for the building at 71 Stevenson Street. “So for us to be proactive, we felt that we needed to add that additional bonus, an incentive, to get the broker’s attention.”

One of every five offices in San Francisco was empty at the end of last year, representing 17 million square feet of vacancies, according to commercial real estate firm Cushman & Wakefield. Signed leases dropped in the fourth quarter from the third as workers delayed their return to the office, the firm said. Prior to the pandemic, landlords had no need for incentives because the market was so tight.

Landlords are offering incentives rather than cut rental rates to avoid a “race to the bottom,” a San Francisco broker who represents landlords and spoke on the condition of anonymity told the Business Times.

The owners of two buildings on Townsend Street in the South of Market area are offering the Cabo vacation through a raffle that brokers enter if they schedule tours of the properties. The landlord of another building in the Mid-Market is handing out AirPods Pro earphones customized with the property’s branding.

A tenant rep broker’s commission is typically limited to between $14 and $16 a square foot, meaning if they did a 10-year, 10,000-square-foot lease deal and had a $14 cap, the most they could earn is $140,000, the newspaper said. A small group of San Francisco landlords have removed the cap, so if the same broker that did the 10-year deal instead had a broker fee of $3 a square foot, they’d take home a $300,000 commission.

The removal of the cap is more the exception than the standard, Qiu said. And it isn’t a new phenomenon: Brokers who toured a building on Kearny Street in the late 1980s, for example, received keys to cars, one of which was a Porsche, the Business Times reported. Other examples include a landlord in Oakland who handed out Rolexes to brokers during the last downturn.

[San Francisco Business Times] — Matthew Niksa

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