Hudson Pacific gives SF cut-rate lease in Mid-Market office building

Hudson Pacific Properties has agreed to give the City of San Francisco a cut-rate deal for up to 1 million square feet of offices in Mid-Market. A sweetener: leftover tech furniture for $1.

The Los Angeles-based landlord gave the city a discounted lease for the 22-story office building at 1455 Market Street, the San Francisco Chronicle reported. The mostly vacant building once served as a headquarters for tech firms Uber and Block.

The city is also negotiating with a different property owner for cheaper offices at 1145 Market Street in Civic Center as part of a larger move to ratchet down real estate costs during falling office rents.

In May, Hudson Pacific will lease more than 157,000 square feet of the building to the city, according to a resolution introduced this week by Board of Supervisors President Aaron Peskin. The city would lease 51,800 square feet on the seventh floor, plus floors 12, 13, 15 and 17. 

The term of the lease is 21 years, with two five-year renewal options.

Base rent will start at $40 per square foot and rise to $72 per square foot in year 21 of the lease term. 

The pending deal gives San Francisco a few concessions, including an allowance for tenant improvements of $100 per square foot. The city can also acquire furniture left behind by the building’s departed tech tenants for $1. 

The lease agreement gives the city an option before the end of 2027 to lease the sixth floor, which spans 131,500 square feet; the fourth and fifth floors, which span a respective 97,700 and 99,000 square feet; and a lease for a 66,000-square-foot basement.

A purchase and sale agreement negotiated between Hudson Pacific and the city’s Real Estate Department would allow the city to buy the office tower at 1455 Market by Dec. 31, 2027. The sale would be contingent on the city leasing 400,000 square feet in the building.

The purchase price would be set at fair market value and be determined by an appraisal, but may not fall below $200 per square foot, according to a contract approval notice filed with the city’s Ethics Commission. 

The office tower will contain several city departments that now occupy an 11-story building at 1155 Market Street. Citing high rents, the Board of Supervisors last fall rejected a lease renewal from its landlord, the nonprofit LightHouse for the Blind and Visually Impaired

Mid-Market was once a burgeoning tech hub known for the 2011 “Twitter tax break,” which eliminated a 1.5 percent payroll tax for firms that moved into certain buildings. But an exodus of tech tenants accelerated during the pandemic shift to remote work. 

The city’s office vacancy just hit 36.6 percent, diminishing building values and office rents.

A separate lease deal is  in the works at 1145 Market, several blocks east of Hudson Pacific’s building and next to 1155 Market. The 13-story, 160,000-square-foot office tower known as One Trinity Plaza is owned by Trinity Properties. 

A pending deal calls for the city to lease about 120,000 square feet, at $30 per square foot. 

“It’s a win-win,” Peskin told the Chronicle. “We are doubling down on Mid-Market. We have the opportunity to buy an entire building. And there are going to be thousands of city employees in the area — this is a boon to Mid-Market.”

— Dana Bartholomew

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