Progress on the only skyscraper to have broken ground in San Francisco since the pandemic's start has ground to a halt as the developer tries to wait out wobbly market conditions.
Australian developer Lendlease confirmed it had paused construction on its Hayes Point project, a 47-story tower approved for nearly 300,000 square feet of office and retail space and 333 residential condominiums. Lendlease broke ground in the tower at 30 Van Ness about a year ago, at the beginning of an economic storm filled with interest rate hikes, widespread layoffs and the possibility of a recession.
The $1 billion Hayes Point development is on hold "until markets normalize and we're able to bring in early tenancy commitments, or capital partners, or both," a Lendlease spokesperson told CoStar News.
Work could resume next year.
"We will monitor the markets while exploring options for a potential restart in 2024," the spokesperson said.
Lendlease's decision to pump the brakes on its Hayes Point project leaves another hole in San Francisco's previously overstuffed construction pipeline.
Stalled developments have become increasingly common in the city and across the Bay Area as developers have struggled to adapt pre-pandemic proposals to the region's new economic reality.
Rents at top-tier office properties in downtown San Francisco commanded more than $100 per square foot before 2020. But rental rates have dropped dramatically as a record amount of sublease space hit the market and leasing activity slowed. Office rents in the market now average less than $57 a square foot, according to CoStar data.
Several Stalled Projects
Office vacancy rates have shot beyond 19.5% — compared to roughly 7% in 2019, according to CoStar data. In some pockets of downtown, the availability rate is nearly 30%, and tenants have given up more space than they've taken on for more than a year.
The hollowing out of San Francisco's commercial real estate market has meant developers such as Lendlease, Boston Properties and Alexandria Real Estate Equities have put several high-profile projects on the back burner.
Boston Properties decided to freeze additional progress on its Platform 16 office project in Silicon Valley because "unfortunately, market conditions in the [region] have deteriorated meaningfully,” CEO Owen Thomas said on the landlord's earnings call this month. He added that the region's large amount of sublet availability, coupled with the fact that the San Jose, California, project was being developed on a speculative basis, combined to push the Boston-based landlord to set work on the site aside and resume once the market improves.
If and when completed, Platform 16 would include three office buildings totaling more than 1.1 million square feet.
Similar to Lendlease, though, the shaky outlook hasn't been enough for Boston Properties or other firms to abandon the projects entirely.
"We believe in the location, we believe in the rationalization of transportation through the Caltrain, which is why we easily picked this location in the first place, and so we're not pushing toward doing something different at this moment," Boston Properties President Doug Linde said. "But fundamentally, we looked at the market and said, 2024 is coming pretty quickly, and owning a building that's going to deliver in that market, and given the availability of other buildings around there, is not going to be the best use of our capital today."