Hudson Pacific Grabs Two Office Buildings in San Francisco’s Booming SoMa Submarket

September 13, 2011
By Barbra Murray, Contributing Editor

625 Second St.

San Francisco’s South of Market, or SoMa, area, is fast moving up the ladder of highly coveted submarkets and Hudson Pacific Properties Inc. is well positioned itself to capitalize on the trend. The real estate company just acquired two office buildings — 625 Second St. and 275 Brannan St. — totaling 187,000 square feet in the area for an aggregate $90.1 million.

SoMa’s cachet is on the rise, and the neighborhood is much more than just the flavor of the week, which comes as no surprise to Hudson. “That’s why they’ve been successful — they’re ahead of the market,” Bryan Courson, a senior vice president and manager with commercial real estate services firm Cornish & Carey Commercial Newmark Knight Frank, told Commercial Property Executive.

Hudson snapped up the 137,000-square-foot brick-and-timber office building at 625 Second St. for $56.4 million. The four-story property, originally developed in 1906 and renovated in 1999, also provides below-grade parking and sits roughly one block from a light rail station. The purchase price for the fully leased 625 Second, which last changed hands in 2007 when KBS Real Estate Investment Trust Inc. acquired it for approximately $51 million, included Hudson’s assumption of existing debt in the form of a $33.7 million fixed-rate loan due to mature in early 2014.

The adjacent property carrying the address of 275 Brannan St. has also become part of Hudson’s portfolio. Hudson acquired the 50,000-square-foot asset for approximately $12.3 million. A three-story brick-and-timber structure, 275 Brannan first opened its doors in 1905; it was most recently upgraded in a partial renovation in 2002. The property is there for the taking by users eager to set up shop in SoMa, as nary a name is on the tenant roster. Hudson will submit the property to a sweeping renovation and proceed with lease-up with the assistance of Colliers International, the commercial real estate services firm that orchestrated full occupancy at Hudson’s nearby mixed-use office property at 875 Howard St.

With the area’s increasing popularity, Colliers will have a growing list of potential users to tap into in its leasing efforts. “The brick-and-timber office properties in SoMa enjoy a vacancy rate of less than 4 percent, underscoring their appeal to SoMa’s thriving creative technology tenants,” Victor J. Coleman, chairman and CEO of Hudson, said.

Industry experts concur that the tech industry is the source of increased demand for the less formal, open floor-plan space that is more common in SoMa than other districts. “They are not looking for stodgy high-rises,” Courson told CPE. “They’re looking for less traditional space because their workforce is younger and they want something more indicative of that culture.”

Tech companies coming down from Silicon Valley and startups seeking to tap into the high-quality workforce pool in the area are flocking to SoMa, he added, as evidenced by the skyrocketing rents. The average asking rents for office space in the submarket jumped from $36.51 per square-foot in the first quarter to $40.29 in the second quarter, according to a Cornish & Carey report.