TenantSee Weekly: Encumbrances
An encumbrance is a burden or impediment. Office leases often contain rights which are exclusive to a specific tenant and which place constraints on the landlord’s ability to lease space to other, 3rd party tenants. These rights are referred to as encumbrances. When tenants consider leasing space in a building, one of the first things they should qualify is the extent to which the landlord’s ability to lease the subject space is subject to any encumbrances. If so, the specific terms of these encumbrances must be understood before proceeding.
TenantSee Weekly: Friday
Walking the near empty streets of downtown San Francisco on this beautiful August Friday, inspired us to ask our friend ChatGPT to craft a poem about the economic impact of workless Fridays. Enjoy!
TenantSee Weekly: How Your Landlord's Tax Reduction May Cost You
Over the past several years, the market value of San Francisco office buildings has dropped by more than 30%. Indeed, in some cases, asset values have declined much more, as evidenced by valuations associated with vacancy-challenged asset sales over the past couple of years. Importantly, a large percentage of the San Francisco office market either traded or was financed in the years prior to the pandemic, when valuations were high and debt was cheap. These activities created increased tax revenue for the city.
TenantSee Weekly: Thinking About Physical Spaces
I suspect most of us are caught off guard by change at scale. When thinking about the pace of change over the last 15 years, it’s clear we’ve entered a new era, one in which technology is enabling us to rethink EVERYTHING. Change in how we design and occupy physical space is inevitable. The skyscraper boom began in the late 1800s and the product playbook in urban core office markets has remained mostly unchanged for decades. Similarly, the ways in which the office product has been developed and owned, the investment thesis, has been largely unchanged in how it relies on capturing the best occupants in leases that reflect the highest possible pricing and the longest possible term to generate stable net operating income and bankable future value.
TenantSee Weekly: Where Does It Hurt?
Office lease negotiations typically cause pain for one party because leverage is rarely balanced such that the outcome is a true win/win. Sure, the actual winner will suggest the other party also won (after all, they got the deal), but sometimes winning feels a lot like losing. That’s OK. Markets ebb and flow. What matters is that you know how you’re hurting the other party.
TenantSee Weekly: TenantSee Team San Francisco Market Predictions: 2024
Let us lend our TenantSee perspective to the coming year. Despite green shoots from 2 large AI sector leases (Open AI and Anthropic), demand for San Francisco office space remained low throughout 2023, yielding 4 more quarters of negative net absorption. We finished the year with vacancy at >35% - an historical record. The market is under significant stress, creating sizable opportunities for occupiers.
