Look Inside San Francisco’s Largest Office Lease of Q1

A new amenities suite and competitive rents landed 525 Market Street the biggest direct San Francisco office lease of the first quarter—a nearly 60,000-square-foot, 11-year agreement that will relocate law firm Goodwin Procter from its long-time home on three floors at Three Embarcadero Center at the end of this year.

Two floors were connected but the third was not and that ended up being a deal breaker for the firm as the lease at Three Embarcadero came to a close, according to Goodwin Procter real estate partner Andrew Sucoff.

“We’re really a stair culture, where people can just walk to each other’s offices, bump into each other and collaborate,” Sucoff said.

Sucoff, who is based in the firm’s Boston headquarters, said it was “eye opening” to find that the Class A view market was actually fairly tight, given all the news of vast vacancies in San Francisco. That said, he toured dozens of buildings in the city with his agents from Savills and ended up with letters of intent from several landlords, including the Embarcadero Center.

He would not reveal specific lease terms, but said the landlords of 525 Market — the New York State Teachers Retirement System and German asset manager DWS — were the “most accommodating to us.”

Goodwin Procter will pay to add a stairwell to connect the 31st and 32nd floors in its new space, Sucoff said, but the cost of some other tenant improvements will be borne by the ownership. J.D. Lumpkin, the Cushman & Wakefield managing director who handles leasing at the property, declined to reveal the TI budget but said it was more or less split between the tenant and the owners.

Elevated amenities

Sucoff said that the building’s new $20 million buildout of a full-floor amenities suite called The Cove was one of the main reasons 525 Market closed the deal. With a planned opening in September, The Cove will have a gym with towel service, cryotherapy, a treatment room and a mother’s room; podcasting, phone and conference rooms; a welcome lounge with fireplace; a cafe and bar; and a hidden-away speakeasy that can also be staffed with a bartender for private parties. The suite covers 29,000 square feet.

“I happen to be in the market in several cities, so not only is it the best I saw in San Francisco, but it’s one of the best I’ve seen in several other cities in the United States as well,” Sucoff said.

There will be a nominal fee for the gym, and drinks and snacks are not included, but otherwise the space is free to use for tenants and their guests. There’s also a conference and presentation space for up to 100 people that will rent at a discount to tenants and be available to those outside the building as well.

The Cove is named for the Yerba Buena Cove that used to be under the building before it was filled in over 150 years ago — with conference rooms bearing the names of sunken ships found near the North Financial District site. The name is also meant to inspire “a place of respite” in a storm, Lumpkin said. Located on the seventh floor, the placement solves two problems: it fills in a lower floor that “might be less desirable for some folks” to rent as private office space, he said, but it also avoids the basement feel of many ground-floor amenities spaces. Plus, Wells Fargo once had its raised-floor data center there, which gives an extra 15 inches of height to the space.

Lumpkin said Three Embarcadero is considered a “top 10 building” in San Francisco, while 525 Market is a “top 20.” But he said the $715-per-square-foot amenities package at The Cove has elevated the building’s status in the city, where current amenities offerings feel like “an afterthought” and other luxury amenities buildouts may be years away.

“There are several other owners in town that are starting or working on some version of this,” he said. “I think we’re easily 12 to 18 months ahead of anyone else and I haven’t heard of anyone making a capital commitment like this to build something of this scale or this quality.”

Agents didn’t even start showing the designs to prospective tenants until last fall, when they were sure of the ownership’s commitment to build it.

There was “a lot of debate” over spending that much, he said, but the feedback they got from clients and other commercial agents was that a mid-range offering was not going to do enough to separate the building’s open and soon-to-be available space from all the other offices in the market.

“We’ve got 40 percent of the building turning over in the next two to three years and we have a lot of space to lease,” Lumpkin said, a far cry from pre-pandemic occupancy levels. “We actually didn’t have a place for this before. We didn’t have a vacant floor to put it on.”

The $20-million bet appears to be paying off, he said, attributing both the Goodwin deal and another with law firm Jenner & Block late last year to The Cove. A finance firm is also circling, he added.

“If this were happening in 2019 would the rent have been $20 higher? Yes,” he said of the Goodwin deal. “But it doesn’t do you any good to look back to 2019 because we’re not going back there.”

Employee retention

Another big change from 2019 is that employers now need to convince their workers that they can offer something better than their home office. Lumpkin said he routinely sees chief HR officers on tours now, which was a rare sight before the pandemic.

Given that, the amenities package at 525 Market was also designed with employee retention in mind.

“The C-suite can belong to fancy clubs but for your average analyst or paralegal this is pretty cool that this exists in your building,” he said.

Both the amenities and the location in a “more lively” part of the city were a big consideration for Goodwin, Sucoff said, adding that he hopes “our lawyers and staff are excited to come to work every day” at the new location.

“We’re supposed to be in the office three days a week and we want those days to be meaningful,” he said. “The next generation of lawyers is saying, ‘I have a good home office, so if I’m coming into the office I need to understand what the value proposition is.’ We’re purposefully trying to make the office a place that fulfills that value proposition.”