10 Year Newmark Pacific Study Finds San Francisco Office Assets Performed Well for Investors; In Spite of The Dot Com Crash.

SAN FRANCISCO -- Beginning with the words of San Franciscan Journalist Mark Twain saying, "The report of my death was an exaggeration," a new study has found that Class A San Francisco office investments have performed well for investors for more than 10 years -- in spite of the dot com crash.

In a drill-down look at a decade of pricing statistics for investment grade office building sales in San Francisco, Newmark Pacific found that prices increased overall about 5%. The overall inflation rate (CPI) in the Bay Area during the same period was 2.9%.

Average prices for high-end office investments in San Francisco rose from $180 per sq. foot in 1995, to an average of around $325 per sq. ft. this year. Almost $3 billion of San Francisco investment-grade properties have recently changed hands. Of the 35 major office deals closed in San Francisco during the period, six sales were made at prices exceeding $400 per sq. ft.

In The City's two previous peaks in sales of investment grade office properties, in both 1999 and 2000, vacancies were much lower than today, somewhere in the 2% to 3% range, and rents were actually on the increase from $45 to $70 a sq. ft.

Surprisingly, investment-grade real estate prices paid through the end of 2004 were not the highest prices paid over the decade. Utah State Retirement System and Cottonwood Partner's acquisition of 500 Howard Street, a 10-story, 230,000 sq. foot Class A Tower completed in 2003, was the high water mark at about $512 a sq. foot.

The largest transaction was Boston Properties' 1998 acquisition of the four million sq. ft. Embarcadero Center for roughly $1.23 billion -- about $307 per sq. ft. -- or $205 per sq. ft. less than the 500 Howard Street high point.

Private investors, including development and investment firms and high-net worth families, were the most active buyers over the ten years, but the San Francisco office market actually saw a decrease in private owners as a group. REITs and institutional investors increased their market share significantly.

The Newmark Pacific study concluded that in order to support further price appreciation or even new development, San Francisco will need to average Class A rents over $40 a sq. ft. with vacancy rates under 10%.

For more information about Newmark Pacific, visit www.newmarkre.com.

To read the full report, visit http://www.gallen.com/Newmark/Perception_vs_Reality_final.pdf.