One in five Silicon Valley office buildings is vacant | Hacker News Reader

One in five Silicon Valley office buildings is vacant

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68 pointsanigbrowl35 comments

Two Class B office buildings totaling ~150,000 ft2 in Boston just sold for $4.1M, when in 2016 they had previously sold for $16M https://archive.ph/AADPP.

Here's the location: https://maps.app.goo.gl/ezkNUEPAVCJJ2rps8 Things to note:

* Within HALF A BLOCK of Boston Common

* Within one-to-two short blocks of THREE subway stations serving THREE of the four subway lines

* A Dunkin' Donuts 30 seconds away on foot, with multiple other cafes within a block.

So prime transit location for workers. However the occupancy of the building has been crud for a long while (hence being sold), and hence why it went for nearly 75% off in the auction.

And before anyone goes, "but what about the condition", take a look for yourself (https://i.imgur.com/rubVC88.jpg not all photos are the building). It's certainly not bad! No, it's not like a top-end Class A skyscraper such as 101 Huntington or 200 Clarendon (or newer stuff I've not been in), but it's far from garbage! It certainly appears to be Class B space, and I say that as someone who actually built out offices (as an employee, not an architect) for two companies about 10-15 years ago!

The sale price works out to just $27.33/ft2. The monthly rent for Class B in 2022 was $32-38/ft2. So these just sold for the (EDIT) one year's rent of Class C space. Yikes! Someone took a bath!

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There's no office demand. Period. Boston has no shortage of vacant office space right now either, and even the buyers of these two buildings are looking to repurpose them.

great market info and very relevant comp to SF in so many ways; especially enjoy the implication that yes, long-term capital holders do in fact measure value by "the distance to the donut shop."

Dunks is a New England institution with a pretty fanatical following, at least for the coffee.

To put things into perspective, until very recently, the Back Bay subway and commuter rail station had TWO Dunkin' Donuts inside the station, within ~100 feet of each other, one on each side of the platform (on the floor above the platforms). One was smaller than the other, but you could literally hit someone in the other line with a thrown donut they were that close.

SF also used to have two Starbucks across the street from each other near Moscone.

But really, isn't that just one shop that happens to have a railway running through it?

They were actually owned by different franchisees!

The spaces were significantly different as well. The one that shut down was so small it couldn't even physically accommodate the equipment to make the sandwiches!

I'm sure there are valid reasons for doing that, but whenever I see multiple franchises within spitting distance of one another, I can't help but be reminded of Gob Bluth's "market research" for a 2nd banana stand in Arrested Development:

> Did you know that more frozen bananas are sold right here on this boardwalk than anywhere in the OC?

And of course he goes on to cannibalize the family's original business.

> The monthly rent for Class B in 2022 was $32-38/ft2.

That is not the monthly lease rate. All commercial property lease rates are quoted as dollars per square foot per year.

You are correct, my bad! Updated my post.

Based on this tenant space listing [0] the building appears to have around 40k sq ft of leasable space. That works out to around 3.25 years of rent assuming 40k sq ft leasable at $32/sq ft.

It’s definitely not a good sign for commercial office space, that’s for sure.

US 30 year bonds are yielding 5%, that’s much more attractive than a half-leased Class B office tower with an 8% mortgage right now.

[0] https://bradvisors.com/wp-content/uploads/2019/04/33-41WestS...

P.S. Sorry about the nitpicking :)

Consider that a lot of these mortgages are not yet at 8%. There is about $1.5T in commercial debt coming due before 2025.

https://archive.ph/ku9Xr | https://www.bloomberg.com/news/articles/2023-04-08/a-1-5-tri...

My comment about 5% 30 year Treasury bonds being more attractive than mid tier office buildings financed at 8% was referring to someone making a current investment decision.

The refinancing of $1.5T in CRE before 2025 is going to be a bloodbath for regional banks, hopefully we don’t have multiple SVB situations as a result.

For anyone unfamiliar with CRE financing, a typical loan might have a term of 5-10 years and an amortization schedule of 20-30 years. A lot of loans that were taken out when the prime rate was 0-2% are now going to have to be refinanced when the prime rate is 5.25% and occupancy rates have dropped, meaning the building is worth less than it was previously and also the monthly payments are higher as a result of the higher interest rates. Lots of building owners are going to walk away and the banks will have to repossess and resell a bunch of CRE.

Apologies for talking past each other. Agree with your analysis.

Except outside America where it’s metric… also as someone who’s gone hunting for commercial space before, it’s kinda only 97% true that it’s always per year… there’s an irritating countercurrent of people that try and trick you into thinking something overpriced is a bargain by quoting the inflated prices at 1/12th the cost because that’s the monthly not the yearly, and people who just deliberately want to game various “by lowest price” sorting mechanisms on property listings websites.

Downtown Boston hotel prices always seem to be insanely high, like higher than NYC and way higher than SF. I don't understand why. Too bad they can't covert easily.

Why when I go to the actual report does it say the vacancy rate is 6.7%? [1]

[1] https://www.colliers.com/download-article?itemId=4056e99d-17...

"The office market measured negative 1.8 million square feet in net absorption, with the vacancy rate increasing 200 basis points year-over-year to 12.5% while average asking rents recorded $5.37 per square foot Full Service."

Looks like something around the definition of availability versus vacancy rate?

If I'm trying to sublease my officespace, is it vacant if i'm still paying my lease?

But I still don't know where 20% comes from.......

They got that from the availability rate, not the vacancy rate. You can see the percentages they list in the article for each town correspond roughly to the "R&D Availability Rates Select Silicon Valley Cities" figure on Page 5

But the overall rate across all cities is not 20% but much lower. So the title is inaccurate even if it’s true in select cities.

The availability rate sounds like it should be some fraction of the vacancy rate, not the other way around.

In SF you will find entire floors vacant while the homeless camp outside.

This is a feel good comment, but the reality is these building are not designed for residential use and would require substantial build out to be habitable for multiple residents.

Now if the thought is just to move the homeless eyesore out of site, then open office space might work.

I think parent is suggesting that it’s absurd that a building not designed for residential use is an excuse to not let people inside who are camping at their doorsteps.

I read it as an observation about misallocation. SF has had no real trouble building, but what got built isn't helping the town.

To bring it up to code, is a very different situation than make it livable, especially when compared to living in a tent on the street.

If you gave me a floor of a commerical building that was mine, that I was allowed to build in and improve how I saw fit, I'd take that in a heartbeat. If there's an Kafkaesque set of red tape, then forget it.

What happens when someone in the building decides who DOESN'T know what they're doing turns you into the next Ghost Ship[0] type fire?

No, we need massive zoning & code reform but not a total free-for-all. You may be resourceful enough to build a safe habitat but there's a good chance all your work will be destroyed because someone decided to build an indoor slum out of pallets and space heaters.

All safety regulations are written in blood.

[0] https://en.m.wikipedia.org/wiki/Ghost_Ship_warehouse_fire

Safety regulations won't keep you warm at night.

Ghost Ship was an absolute tragedy, and a close dear friend was on her way there that night. It made national news. But it's funny, the homeless encampment fires that keep happening in West Oakland just five miles away, that keep killing people don't get the same kind of national coverage. There was one just this past April.

To be able to be used for commercial occupancy, the buildings have an up-to-code sprinkler system. Keeping those systems up to code requires yearly inspections and walkthroughs and testing. So just keep doing those while we let people live in them?

Ghost Ship is good to bring up. In the wake of it neighboring San Francisco shut down several warehomes, forcing people out onto the streets in one of the most expensive housing markets in the world. There was no real help from the city or fire marshals to bring things up to code, just a bunch of red tape. Critically, no money was made available from the government to do any renovations to bring things up to code and stop people from dying in fires. Just evictions.

> In its majestic equality, the law forbids rich and poor alike to sleep under bridges, beg in the streets and steal loaves of bread.

I completely understand your point, and I agree with it. I just don't trust laissez-faire economics. We've got entrepreneurs trying to put SF techies into communal bunks.

If that's how they're willing to treat engineers, how will they treat the poor and disabled?

Then again, I also understand the historically bad examples of crime-filled government housing projects.

I don't know how to convince Americans to do things the more European way. As someone born in the USSR and raised in a "commieblock" I see how housing like this is far better than living on the street. Many of the big block style apartments all over western Europe are quite decent.

How much more pain before we have massive housing reform? Will we ever? I don't know. Neoliberalism is eating the country and we're in a deadlock. The pressure is continuing to build and build.

I am very concerned about a collapse scenario, because the USA is awash with guns and the far right keeps gaining ground.

I would wager these buildings are more appropriate for residential use than the sidewalk.

Good lol

Just image is all (some??) of these empty offices could be used for housing?

People accutally living in a city centre. What a idea.

Good! We're 20% there!

SF or the whole bay?

> These office markets are the Silicon Valley’s weakest by availability rate, according to the report:

Santa Clara, 29.1%

Mountain View, 26.6%

Campbell/Los Gatos, 24.4%

Palo Alto, 23.1%

San Jose, 19.7%

Sunnyvale, 14.3%

Los Altos, 13.9%

while this sucks for commercial property owners and the plethora of businesses that have supported the office work life for so long, time for them all to adapt and move on.

SF is a boom/bust town, they're used to it, right? </s>

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