Op-Ed, Commercial Real Estate, Bay Area
greg fogg
TenantSee Weekly: Knowing Your When

We see a lot of confusion in the market around when to begin negotiations.  It’s not an insignificant consideration.  In fact, when you begin can make a huge difference in the outcome.  It’s understandable that tenants would not know when to start.  Brokers are not always keen to start at the right time, since compensation is derived by transacting and the closer the tenant is to lease expiration, the faster it will need to transact (and the fewer options it will have).  Good for the broker, bad for the tenant.  This creates a misalignment of interests that discourages thoughtful consultation on the front end – the more time a broker spends on a project, the lower the compensation. 

TenantSee Weekly: Knowing Your When
Op-Ed, Commercial Real Estate, Bay Area
greg fogg
TenantSee Weeky: A Big Decline in Rents, Four ...

Throughout 2020, the prevailing sentiment among investors in the San Francisco office market was one of relative optimism.  After all, despite the fact tenants were prohibited from occupying their buildings, they continued to collect full rent.  The buildings were full, with vacancy hovering around 4%.  Sure, companies weren’t happy about paying for space they couldn’t use, but business was good.  In many cases the tech sector (which makes up most of San Francisco’s office occupancy) was booming due to an even greater reliance on and usage of tech caused by pandemic driven changes in how people were living.  Throughout the course of 2020 there was no reason for San Francisco investors to panic, as few (if any) office occupiers were showing signs of developing long-term hybrid or remote-first strategies.  Most were simply focused on solving for ongoing operations as a temporary reaction to the pandemic.  Yet early indicators did point to a future in which companies would be shedding office space, as some expiring leases were not replaced.  This, coupled with the addition of new supply, caused a big increase in vacancy to nearly 12% by year end.  Despite this large uptick, the brunt of the sluggish demand dynamic was being felt in the sublease markets, where rental economics more accurately reflected the true state of the market.  Despite a total closing of the office market in 2020, average asking rents ended the year off just 6% from the pre-pandemic high.

TenantSee Weeky: A Big Decline in Rents, Four Years in the Making
Bay Area, Commercial Real Estate, Op-Ed
greg fogg
TenantSee Weekly: Modern Workplace Planning: ...

In the years leading up to the pandemic, most medium and small companies defined their office space need based on headcount (current and projected), space programming, and industry/sector norms.  The exercise was mostly formulaic.  The primary differences in the offices of a small, regional law firm compared to those of an AM Law 100 firm would be scale, the cost of finishes, and the quality of the building and views.  It was planning for the same outcome, just at different levels on the cost spectrum.  Companies having a larger portfolio of offices would typically create a “workplace strategy” that included guidelines around programming (e.g., space layout, office size, critical adjacencies, growth factor, finishes, FF&E, etc.).  These guidelines could then be used to inform the real estate process across geography.

TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part I: The Purpose
Bay Area, Commercial Real Estate, Op-Ed
greg fogg
TenantSee Weekly: This, or That?

Negotiations are always about (or should always be about) this or that.  There’s always something else, maybe that something else is nothing (as in sometimes the best thing to do is nothing at all).  Decisions made without proper consideration of all relevant alternative scenarios are decisions made poorly.  As important, in the context of office lease negotiations, the best negotiated outcomes are directly correlated to the extent to which we understand the alternatives of the landlord counterparty.  This is a bit counter intuitive, allow us to explain. 

TenantSee Weekly: This, or That?
Bay Area, Commercial Real Estate, Op-Ed
greg fogg
TenantSee Weekly: I Digress...

A little AI distraction to cheer your day (and relieve us of yet another discussion about workplace). Ever wandered through the streets and felt like you've stepped into the future? With their undeniable presence here in San Francisco, the driverless car is quickly becoming the most prominent representation of AI in our daily lives. If you spend any time in San Francisco neighborhoods, you can’t miss them. The other day, as I chatted with a neighbor, I counted 6 autonomous vehicles casually cruise by our front door within a span of 10 minutes. Intriguing, right? And today, in a twist of irony, I was held up by one. Blocked by a double-parked UPS truck, the driverless car hesitated, unsure about navigating into the lane of oncoming traffic. Of course, all the drivers in the opposing lane weren’t too keen to make space for the driverless car, as one normally would (or at least the more decent among us would) for a human-driven vehicle. Hence, we waited.

TenantSee Weekly: I Digress...

Commercial Real Estate

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TenantSee Weekly: Space Disposition Math Exercises in a Declining Market

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TenantSee Weekly: Space Disposition Math Exercises in a Declining Market

Who wants to do some fun disposition recovery math?! San Francisco’s office market has been the perfect storm for occupiers looking to dispose of office space. High vacancy and sluggish demand against the backdrop of record high in place rents. While the market is a key variable in determining sublease outcome, it can be a distraction in defining the correct disposition strategy when occupiers focus on current rent values in the market at large. In the declining market, only the values being achieved on comparable sublease offerings serve as a relevant proxy for market, but even then, there is a high degree of fluidity. Why is the sublease offering valued differently than comparable direct space?

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TenantSee Weekly: How Remote Work is Changing Small Town Residential Markets

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TenantSee Weekly: How Remote Work is Changing Small Town Residential Markets

For many years my family has been coming to Vermont for summer vacation. We love the change of scenery from our urban life in San Francisco. Every morning at about 5 am the birds begin singing outside our windows, serving as a natural alarm clock. As they gently nudge you awake with their beautiful songs, the sun begins to rise. Our place is located in a town called Quechee, VT, home to a long running hot air balloon festival. It’s pretty common to hear the gentle hiss of a balloon passing overhead early in the morning. When this happens, it’s such a beautiful sight that we usually jump out of bed and run to the deck to watch. It’s a peaceful experience.

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TenantSee Weekly: The Questions

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TenantSee Weekly: The Questions

We’re having the same important conversation with nearly all our clients. It stems from 2 basic questions; 1) What if we don’t have an office, and 2) Can we structure the lease so that if the market declines over the coming years, the rent for our space will similarly decline?

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TenantSee Weekly: Who Stole My Narrative

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TenantSee Weekly: Who Stole My Narrative

Historically, the narrative within the commercial office markets in big cities has been controlled by institutions. Institutions who own the buildings and institutions who “own” the employees. The markets fluctuated between “tight” or “soft” and leverage shifted back and forth from landlord to tenant. These 2 market participants, landlord and tenant, supply and demand, called the shots. Sure, there were other variables, the economy, other market influences and influencers. But the narrative was defined within a fairly narrow range.

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TenantSee Weekly: Why You Need to Spend More on Design

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TenantSee Weekly: Why You Need to Spend More on Design

Architecture, interior design and furniture design each impact how we feel. If you’re someone who is not particularly aware of this connection, take a moment over the coming days to note your feelings upon entering different buildings, different spaces. Notice the volume. Contemplate the impact of day light and other light sources. Consider the way the rooms are designed, the flow. What about the furnishings? Is it comfortable? Does it look interesting? Is there artwork? If so, how does it affect you? Does the space inspire you? Does it make you feel content? Does it make you anxious? Does it make you feel gloomy?

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TenantSee Weekly: When Workplace Isn't a Place

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TenantSee Weekly: When Workplace Isn't a Place

Technology used to compliment space. It was an adjunct to the physical office. However, today’s workplace is really not a place at all; rather, it’s a hub of technology resources that travel with the employee wherever she may go, which may or may not include a corporate office. Tech has jumped ahead of space as the more important element in defining the total workplace.

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TenantSee Weekly: Got Leverage?

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TenantSee Weekly: Got Leverage?

With the exception of premium view space, which is leasing at rates above pre-pandemic highs, many office owners in San Francisco are heading into a prolonged period when competition for tenants will be intense. There are several reasons, but let’s start with a few stats:


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TenantSee Weekly: Lease Security: How Landlords Underwrite Risk

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TenantSee Weekly: Lease Security: How Landlords Underwrite Risk

Ever wonder how landlords underwrite the financial risk of your lease transaction? Or, why many landlords prefer a letter of credit instead of a cash security deposit? The security deposit was originally conceived as a mechanism to help the landlord cover ancillary costs that come up during the term and/or upon lease expiration. Typically equal to 1 or 2 months of rent, it did not cover much. Then, somewhere along the way, an enterprising landlord with leverage got clever and decided to negotiate for more value in order to better cover what really happens when a tenant defaults.

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TenantSee Weekly: Essential Math

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TenantSee Weekly: Essential Math

Office markets are big boats. They don’t turn quickly. There’s always a delay between negative macro-economic events and declines in rental economics. After all, it’s not as if landlords see the negative event and decide it’s time to lower rents. No, they resist. As long as possible. This creates a gap between where everyone knows the market is heading and where it is otherwise defined by comparable lease data. We’ve written in the past about how eventually a declining market reaches a point of broad capitulation when landlords are more unified at the bottom – this is when nearly all tenants benefit from the down market simply by showing up. The challenge facing occupiers whom are negotiating at the front end of the downturn is how to capture the full benefit of a decline that has yet to fully mature.

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Market Outlook QTR1 2022 - Tenant Perspective

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Market Outlook QTR1 2022 - Tenant Perspective

This San Francisco office market report is provided compliments of Samantha S. Low and Greg Fogg, co-creators of TenantSee. TenantSee is a tenant real estate product combining a team of subject-matter experts with powerful technology to make tenant real estates smarter, faster, and better. Our report is intended to provide you, the tenant, with meaningful insights, not raw data. To learn more about TenantSee, please visit www.lowfogg.com

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TenantSee Weekly: Following the Money: A Tenant Advisor's Compensation

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TenantSee Weekly: Following the Money: A Tenant Advisor's Compensation

Ever wonder how and/or how much a tenant advisor is paid? It’s an obscure compensation model. In the interest of transparency, we thought it might be useful to provide a more detailed view.

Tenant advisors (in most cases) are not paid a salary. Their compensation is usually 100% commission-based. This is among the reasons why the industry lacks diversity, both racial and socio-economic…it’s nearly impossible for someone without a measure of financial support to get started. The path to compensation begins with being retained by a client. Yet being selected to advise a client is not easy. It is typically the culmination of a long period of marketing, knowledge sharing and relationship building. Developing a meaningful relationship may take several years (and probably should). Hence a lot of the activities in which a tenant advisor is engaged are non-compensatory…they’re speculative.

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TenantSee Weekly: Culture and the Modern Workplace

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TenantSee Weekly: Culture and the Modern Workplace

Culture: noun: the customs, arts, social institutions, and achievements of a particular nation, people, or other social group.

We all want to be part of something great. We want our workplace culture to be worthy of its “Best Places to Work” status. But in many cases, the corporate “cultural persona” does not fully reflect the cultural reality.

Why? Firstly, leadership. Leaders tend to focus on the desired culture as opposed to the existing culture. It’s easier (and more uplifting) to identify the cultural characteristics you want, as opposed to sifting through the complexities of the culture you have. But when the aspirational culture fails to align with the existing culture, it results in an authenticity problem. However, you can’t fully blame leaders. Most companies lack the right incentives for leadership to invest in the hard work and difficult decisions necessary to bridge the gap between existing and aspirational culture. For example, achieving cultural alignment might necessitate terminating individuals who are financially productive but culturally cancerous. There could be entire groups within the company who behave in a manner that is inconsistent with the aspirational culture.

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TenantSee Weekly: Stupid is Easy (and expensive)

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TenantSee Weekly: Stupid is Easy (and expensive)

In tenant-favorable market environments, landlords often provide more concessions to compete for tenants. Concessions come in many forms, the most obvious being, landlord funding for tenant improvements, free rent, reduced rent and more flexible lease terms. But understanding the value of the concession is not always easy, especially relating to tenant improvements, one of the biggest economic variables in leasing.

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TenantSee Weekly: Thinking vs. Doing

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TenantSee Weekly: Thinking vs. Doing

Much of what we “do” every day is driven by long established norms, norms that most of us rarely give much thought. Societies always have outliers who think about things a little differently. Often, these thinkers are entrepreneurs. Their journey usually begins with “why” or “what if”. Why are most people seemingly happy to exist within the status quo? I believe it’s the discomfort created by stepping outside the normalcy bubble to think for oneself. Just spend one day asking yourself why you do the things you do and you’ll see how easy it is to imagine different solutions. Of course, you have to accept that your solutions might be worse. And should you wish to advocate for your new solutions, be prepared for resistance. People resist out of fear of the unknown, or because they have a vested interest in keeping things the same. But resistance is a powerful force against change.

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TenantSee Weekly: Equity and the Hybrid Workplace

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TenantSee Weekly: Equity and the Hybrid Workplace

Workplace equity is a big, important topic. The pandemic has helped advance a better discussion about how to create workplaces that are more inclusive, that support the specific and differing needs of the employee base. It’s not so much that we’ve learned our offices don’t serve all equally well, we already knew this. Instead, companies have been forced to address this reality head on because the concept of the office has been turned on its head. The act of creating equity when everyone was remote has (hopefully) built some institutional “muscle memory” that will serve us well as we embark on what’s next.

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TenantSee Weekly: Where Else Can You Go?

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TenantSee Weekly: Where Else Can You Go?

One of the more interesting outcomes from the pandemic has been the advent of a new competitive factor for landlords to contemplate when negotiating with existing tenants; namely, the possibility of no office, either as a permanent or temporary solution. When a company is willing to let the lease expire without having secured an alternative office solution, it takes one of the landlord’s most effective “levers” out of play. As we’ve written about in prior posts, landlords are very good at using time to their advantage. Historically the closer the tenant gets to lease expiration without having fully negotiated new deal terms, the more leverage the landlord has to command better terms.

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TenantSee Weekly: Underwriting Tax Increases (Before You Lease)

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TenantSee Weekly: Underwriting Tax Increases (Before You Lease)

Over the past decade, may office buildings in San Francisco have been sold, some multiple times. For tenants, these sales translate to material increases in the cost of the lease. Why? Primarily because of taxes.

California has Prop 13, which limits annual increases in real estate taxes to 2%, excepting at the time of a sale or financing of the asset, at which point the tax base is adjusted to market, often causing a big spike in taxes. It’s in these latter scenarios, a sale or financing, when tenants are exposed to potentially large cost increases. This is true because the tax attributable to a sale or financing is passed on to the tenant.

For every $100/sf in increased asset value, the rent increases by $1.50/sf. So if a company leases space in a building that has a tax base value of $400/sf and the building subsequently sells for $800/sf, there is a $6.00/sf/year increase in the lease cost. For a 10,000 sf lease, the added annual cost is $60,000.

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TenantSee Weekly: Sucking More, Not Less: A Modern History of the Office Lease Document

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TenantSee Weekly: Sucking More, Not Less: A Modern History of the Office Lease Document

Ever wonder why the office lease is 60+ pages of single spaced madness? The answer is simple. The “selling” of protection from crafty attorneys and incident-driven drafting. With the former, lawyers craft language and sell it to institutional clients as creative mechanisms for protecting landlord value. Over the years, I’ve seen “gotcha language” buried deep in all sorts of poetic BS. Firms have incentive to create these documents because protection sells. In the latter, incident-driven drafting is what happens when a tenant and landlord have a dispute and the landlord says, “…let’s draft language so that never happens again.” As you can imagine, throughout the decades, there have been many disputes and issues between landlords and tenants, greatly adding to the heft of your lease document.