Bay Area’s office market is good, but for how long?

Region with the highest rents in the nation is facing headwinds


The Bay Area’s office gold rush may be slowing down. But holistically it still holds the nation’s most expensive commercial real estate offerings, according to a new report by a commercial cafe.

The report shows the region has eight of the top 12 submarkets with the highest office rent asks in the country. 

Manhattan’s $117-per-square-foot average rent listing still tops the list, but Menlo only trailed by only a few dollars at $114 per square foot. Palo Alto placed third at $97 per square foot and Redwood City fourth at $86 per square foot.

San Francisco’s South Financial District ($74 per square foot) was sixth on the list, while Redwood shores, San Mateo, San Francisco’s North Financial District and Oakland were positioned nine through 12. 

On the surface the news appears good for the Bay Area’s office market, but there have been signals of concern, which started at the beginning of the year. Some CMBS loans face potential default and an increasing number of large properties have been hitting the market.

The future of Shorenstein Properties’ twitter building was in question after it lost out on refinancing options. However, the loan was mysteriously paid off before a Jan. 9 deadline, which could have triggered severe consequences. 

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Out in Silicon Valley, the number of offices for sale continues to grow — including Intel’s massive headquarters. The chip manufacturer is looking to offload its 505,000-square-foot campus for an undisclosed price and lease back some of the space. The campus is estimated to be worth around $190 million. 

Also, Analog Devices is seeking a buyer for its 320,000-square-foot campus in Milpitas, also for an undisclosed sum. That property is estimated to be worth around $30 million.

The recent Bay Area banking debacle has raised additional red flags, and significant investments in commercial real estate loans could be at stake. Silicon Valley Bank was taken over by the federal government and it held about $2.6 billion in commercial real estate loans. Some 35 percent of its commercial-backed loans were on multifamily properties, while office properties accounted for 21 percent.

There was a concern the same fate awaited San Francisco-based First Republic, however it scored a $30 billion lifeline from 11 banks. It held $24 billion in commercial real estate loans, according to its financial report.

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