Something happened recently that we couldn’t ignore. Two of our advisors, Jack Riazzi, senior vice president in Charlotte, and John Jarvis, managing director in San Diego, sat down within weeks of each other and independently wrote nearly the same warning to tenants. They never compared notes. They landed on nearly the same title. That kind of coincidence tells you how strongly we feel about this, because it’s the thing we see every day and can’t stop talking about: the information gap between landlords and the companies who lease from them. In this piece, Jack takes the psychology: what your landlord already knows about you before you ever sit down, and the pressures on their side that you can’t see. John’s companion piece takes the other half, the mechanics of the lease itself. Same table, two coasts.

Six things the other side of the table is hoping you don’t know

Most tenants we meet want to talk about the same number first, the rate per square foot, and landlords are perfectly happy to let them. It’s the one term they worry about least, because landlords know the real economics of a lease live almost everywhere else. That’s the first thing they understand that most tenants never learn.

The biggest advantage a landlord holds isn’t experience, it’s information. They know how transactions are structured, where the flexibility is hiding and how to create leverage at exactly the right moment, while most tenants only ever see a fraction of that picture. Below are six things they know, and are hoping you don’t.

1. Your Representation is Already Paid For

The most common reason a company hesitates to bring in an advisor is the worry that it’ll cost them, and we hear some version of this all the time. If we bring someone in, won’t that make the deal more expensive or harder to close?

Landlords know that hesitation, and they are quietly counting on it. What they won’t volunteer is that commissions are already built into the economics of the building, a cost that exists whether you have someone advocating for you or not. Choosing to go without representation doesn’t save you a fee. It simply means the only experienced people in the room are working for the other side.

2. The Asking Rate is Bait

Asking rates aren’t offers, they’re anchors. They’re there to start the conversation in the landlord’s favor and to leave room to look generous later while giving up very little that matters.

A tenant who fixates on talking that headline number down a few dollars is playing exactly the game the landlord wants to play. The concessions that actually move the cost of a lease are sitting in the terms most tenants never think to ask about, which brings us to the part of the deal that matters most.

3. They’re Negotiating Your Leverage, Not the Market

Tenants love to ask whether now is a good time to sign, and from a landlord’s perspective that is the wrong question entirely. They are not really negotiating against the market, they’re negotiating against your leverage, and they can read it quickly.

Leverage comes from a few specific places: the number of real alternatives you have in play, the runway before you have to make a decision, and your genuine willingness to walk away. A tenant with options and time creates competition, and competition is the only thing that reliably moves a landlord. A tenant with no alternatives and a looming deadline has already told the other side everything it needs to know, often without saying a word.

4. Their First Proposal is Built to Move

Landlords expect to negotiate, and their opening terms are written with that expectation already baked in. The mistake tenants make is treating that first proposal as though it is close to market, when it rarely is.

Real improvement usually only shows up after three things become true. Credible competing options enter the picture, the timeline gets real and the landlord starts to believe the deal could actually slip away. Until those signals are on the table, there’s very little reason for anyone to sharpen a thing, and the landlord knows exactly how to wait you out until you hand them one.

5. The Lease is Won in the Details

Rate gets all the attention, but the structure is what actually determines the outcome. There are far more moving parts in a lease than most companies realize going in, and each one can shift the cost, the flexibility and the risk of the whole deal.

As you can see, beyond base rent, the list runs long:

• Annual escalations
• Tenant improvement allowances and how they are funded
• Free rent and when it applies
• Renewal and extension options
• Expansion rights or rights of first refusal
• Contraction and flexibility provisions
• Assignment and sublease language
• Guarantee structures
• Operating expense pass-throughs and how controllable they are
• Expense caps and audit rights
• Maintenance and capital expenditure responsibilities
• Delivery conditions and timing
• Default and cure provisions
• Early termination or buyout rights

Each of those can quietly turn a deal that looked competitive on rate into a poor one when the rest of the document is left unnegotiated. Landlords understand this better than anyone, because the structure is where they earn back whatever they conceded on the headline number.

6. They’ll Trade Real Money for Certainty

Here’s the one most tenants never use to their advantage. Certainty is worth money to a landlord because it lowers their risk, which means a strong financial profile, a longer commitment and a clean and straightforward deal structure all carry real value on the other side of the table.

A tenant who understands this can trade that certainty for concessions deliberately, offering the landlord something it genuinely wants in exchange for something that matters more to you. A tenant who does not understand it tends to give the very same certainty away for free.

The Bottom Line

Landlords aren’t better negotiators because they’re smarter. They have the advantage because they live in this every day, are fluent in the nuances, know the pressure points and understand the places where flexibility quietly exists. Most companies negotiate a lease once every few years, and that imbalance is exactly what landlords rely on.

Going without representation doesn’t make the process simpler. It just means walking in with far less information and experience than the party sitting across the table.

At Hughes Marino we work for occupiers of space, not landlords, which means the whole perspective we bring to your real estate negotiations belongs to you. Our job is to give you what the other side has always had: a clear view of how landlords think and where the real opportunities are. Because once you understand what the other side knows, every decision changes, and you negotiate accordingly.

The post What Your Landlord Knows (That You Need to Know) appeared first on Hughes Marino.

      

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Something happened recently that we couldn’t ignore. Two of our advisors, John Jarvis, managing director in San Diego, and Jack Riazzi, senior vice president in Charlotte, sat down within weeks of each other and independently wrote nearly the same warning to tenants. They never compared notes. They landed on nearly the same title. That kind of coincidence tells you how strongly we feel about this, because it’s the thing we see every day and can’t stop talking about: the information gap between landlords and the companies who lease from them. In this piece, John takes the mechanics. The levers buried inside a lease that quietly decide what a deal really costs, long after everyone has stopped arguing about the rate. Jack’s companion piece takes the other half, the psychology of what your landlord already knows about you. Same table, two coasts.

Overcoming information asymmetry in commercial lease negotiations

Imagine sitting down to a poker table when the dealer shuffles the cards, cuts the deck and deals…except their cards are all face down and yours are all face up. Yep. This is what most tenants experience when negotiating building leases opposite institutional property owners. It’s the age-old problem of information asymmetry. At the risk of stating the obvious, it makes it kind of hard to bluff. So how does this happen? And how do we fix it? Let’s dig in.

They Know What Every Tenant in Your Building Is Paying

Your landlord is a party to every other lease in your building. Every tenant, every rate, every concession, every package of free rent, moving allowance and tenant improvement dollars. They know what the accounting firm on the third floor pays per square foot. They know what they had to give to win the three-floor tech company on seven, eight and nine. They know it all, from the tenant who was well represented by a seasoned tenant-side advisor, to the tenant who tried to go it alone and left massive dollars on the table.

They Know You’re Not Going Anywhere

It’s not surprising that the landlord’s property manager has a great relationship with your office manager. The property manager’s just doing their job. Those two talk all the time. Very cordial. Very friendly. And when your office manager, being friendly in return and making small talk, volunteers that your team does love the building and really does not want to move, of course that information finds its way to the building owner’s leasing team.

And let’s talk about that darn carpet. Your team just spent $95,000 on new carpet! You don’t do that if you are planning to move. Of course, the landlord is paying attention, and the carpet refresh is a tell. It’s a clear sign that you’re comfortable, that you’re settled and that you’re not going anywhere anytime soon. In other words, they know the cards you’re holding.

None of this happens by accident. Institutional landlords are sophisticated operators. Cultivating soft intelligence about tenant satisfaction and switching costs is part of how they manage their buildings and their investment. By the time you sit down to negotiate, they already have a very good sense of how things are going to play out.

They Also Know How Low They Can (And Can’t) Go

Behind every lease negotiation is a proforma, a financial model that tells the landlord precisely what the deal needs to look like in order to deliver the net effective rents that allow them to deliver on their proforma (aka promised) returns to their investors and their lender. They know their bottom line. And even if the market has declined below their proforma threshold, they can’t and they won’t.

And They Know That They Have a Problem

Yep, the landlord has a problem that you don’t know about. You see, they have a loan, with a balloon payment due at loan maturity, and it’s just a few months away. If you’re 2,000 square feet, maybe your lease doesn’t move the needle. But if you’re 20,000 square feet? Maybe it does. And if you’re 200,000 square feet? Your lease could be the difference between delivering those promised returns for their investors and delivering a deed in lieu of foreclosure.

So How to Even the Odds

You don’t have to play blind. The information asymmetry is real, but it’s not insurmountable. A strong tenant advocate or tenant-side advisor knows how the game is played and can help you to close the information gap. Just like the landlord, a top-tier tenant advisor does a large volume of business on the tenant side. They know what other tenants are paying, both the renewal tenants and the highly sought-after tenants that are signing new leases for the largest vacant spaces. They know how to run the landlord’s math. They know the landlord’s proforma targets, the concessions they’ve made in the past and the additional concessions they can afford to give away today.

Most importantly, they know how to coach you and your team to approach every project with an open mind and to consider what you would do differently in a new building if you did relocate. In other words, they know how to lead a process, because it is never just a lease renewal. A good tenant-side advisor who has worked transactions for years will know this first-hand.

When negotiating opposite your institutional landlord, you don’t have to simply play the cards you are dealt. Before you engage, take the time to hire an experienced and qualified tenant representative, someone who has experience as a tenant and buyer-side advisor, someone who has a long history in commercial lease negotiations as a tenant advocate, someone who can make you as smart (or smarter) than the property owners on the other side of the table. Once you’ve done that, with a strong advocate in your corner, you’ll be in a position to shuffle up and deal.

The post What Your Landlord Knows (That You Don’t) appeared first on Hughes Marino.

      

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From 2023 to the present, consumer behavior has drifted toward pre-2020 norms, and the demand for industrial space has also reversed due to the slowing of imports coming into the United States. The effect on industrial market conditions is that the market is moving into tenant-favorable conditions. When compared to the nation, San Diego is in the middle of the pack of the major U.S. markets in terms of occupancy levels as shown by the chart below. While the San Diego region has drifted up to 13% availability, many U.S. markets are somewhat comparable to the region while the few softest in the U.S. are Phoenix, Seattle, Atlanta and Denver, all over 15%. Only the two markets of Los Angeles and San Francisco are still marginally below 10%, considered to be somewhat in landlord territory, while all the other markets around the country have moved solidly into leaning toward tenants.

San Diego has very diverse influences that drive the availability of industrial space throughout the region. Central to the regional population and most major highways, Kearny Mesa, Miramar and Sorrento Mesa are always in demand and ran out of developable industrial land a few decades ago, so supply in those areas will never grow. The largest remaining parcels of industrial land are in South Bay, where most of the region’s new construction happened over the last five years, with some land remaining in North County. The effects of these regional dynamics have created massive swings in the availability rates by submarket, all of which have increased, except for East County, which is fully built out and remains in strong demand due to its low cost and the communities served.

As shown on the chart below, the South Bay submarket is now at 23% availability, making it one of the softest industrial markets in the entire United States, and very tenant-favorable. Rents here are some of the cheapest in the region and will face downward pressure for a few years to come. The submarkets that are in the 10% to 15% range are considered to be in equilibrium, but many landlords have been dropping rents recently in North County, as increased softness in Vista, Oceanside and San Marcos has put pressure on Carlsbad landlords. The region’s Central County landlords in Miramar, Sorrento Mesa and Kearny Mesa have found that their space sits on the market longer than in the last few years, with modest softness in rents and an increase in free rent, even on lease renewals.

As it relates to sublease inventory, the region has been haunted in the last few years by a spike in industrial sublease inventory. In a national phenomenon, many companies are looking to shed excess space they leased during the 2020 to 2023 run-up, leaving many industrial companies today with excess capacity. The lack of imports coming into the San Diego region has also caused many companies to lean down their footprints, putting excess space on the market. With roughly 2M SF of industrial space bouncing around on the market, there are values to be had in Miramar, Poway, South Bay and Carlsbad/Vista for companies seeking more than 5,000 SF. This sublease condition is expected to last well into 2027 and creates a condition where tenants can become landlords’ biggest competitors.

Overall, the San Diego and national industrial markets have done a massive pivot in the last year where many U.S. metro areas have higher availability, a reversal in rents and a spike in concessions. We are dealing with a new normal where tenants can expect to continue to find good values and numerous opportunities for several years to come, as long as they are proactive in addressing their lease expirations and aggressive in going to market to create the proper leverage and optionality.

Market statistics provided by CoStar Group.

The post San Diego Industrial Market Firmly Tilts Toward Tenants appeared first on Hughes Marino.

      

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San Diego’s strength is a function of several simultaneous events and conditions. On the supply side, San Diego did not have significant new office building construction underway in 2020 when Covid hit, so there were not many new buildings in the pipeline. Second, dozens of office buildings totaling over 1M SF came off the market in Torrey Hills, Del Mar Heights and Sorrento Mesa for conversion of office space to biotech wet lab research space to support the demand surge of life science companies for such lab space from 2020 through 2023. On the demand side, San Diego employees have typically not had one-way commuting conditions that exceeded half an hour on average, whereas many metropolitan areas have employee resistance to return to office due to extreme commute times. Also stabilizing demand, although many companies downsized from 2021 through 2023, it has been more common in 2024 and since for companies to renew their leases and maintain their footprints. Recently, the market has even been seeing a number of incremental expansions by local companies, including some law firms and financial services companies.

As we look at the major San Diego submarkets, it would be natural that availability rates today would be higher than the pre-Covid conditions. However, some submarkets are dramatically higher, which happen to be those same submarkets that were softer pre-Covid, including Downtown, Carlsbad and Sorrento Mesa as shown below. All three submarkets top well over 20%, making them the three softest markets in the region, where rents in each case are generally very tenant favorable. Downtown is one of the softest downtown markets in the United States, where market dynamics today are extremely volatile given the migration of tenants from the east side, where rents can generally range from $2.25 to $2.75, to the west side where rents more generally range from $2.50 to $4.50. The one market that is behaving irrationally is Sorrento Mesa, where some landlords are demanding rental rates for Class A space that are more expensive than options in neighboring UTC, so we can expect a pounding to start coming to Sorrento Mesa.

The tightest markets are Mission Valley and Kearny Mesa, only marginally more available than their pre-Covid conditions, and UTC. All three markets are approximately 15% available, and very much in equilibrium where it’s neither a landlord market nor a tenant market. These markets have continued to remain in demand due to their central location, freeway accessibility and foundational industries that tend to be more in-person and recession-resistant, including engineering, financial services, insurance, legal and accounting, and other basic industries that are less volatile.

As it relates to sublease inventory, the market has shown a strong recovery as the chart below shows, where the amount of sublease inventory on the market has bled off significantly in the last two years. Sublease space either came off the market due to offering below-market rents, or simply due to the passing of time where the underlying lease expired. Sublease inventory is expected to continue a downward trend through the end of next year and revert to pre-Covid normalized conditions, as tenants no longer find that they’re carrying excess space.

Overall, the U.S. office markets have taken one of the biggest poundings that we’ve seen in the last 30 years, more dramatic than the 2000 Dot Com Bubble or the 2008 financial crisis. The difference this time is that Corporate America has structurally reduced its office requirements as a result of remote working and hybrid conditions that evolved and locked in place post-Covid, and are expected to be sustained for many years. Throughout the region, we are dealing with a new normal where tenants can expect to continue to find good values and numerous opportunities for several years to come, as long as they are proactive in addressing their lease expirations and aggressively go to market to create the proper leverage and optionality.

Market statistics provided by CoStar Group.

The post San Diego Office Market Settles into the New Normal appeared first on Hughes Marino.

      

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Historically, industrial markets are supposed to behave rationally: as availability rises, asking rents should fall, and vice versa. But since 2021, the Denver industrial market has increasingly violated that basic economic logic:

• Availability has climbed in eight of the last ten years, moving from 7.3% in 2016 to over 15% today (more than double) with no sustained pullback in sight. It just posted a new all-time high in the first and second quarters of 2026 and has held near that level since.
• Even as availability rose nearly 70% from its pre-Covid (first quarter 2020) level of roughly 9.1%, landlords and their brokers continued to raise asking rents for over three more years, peaking at $10.92/SF between the third quarter of 2023 and the second quarter of 2024.
• Today, availability sits at an all-time high of roughly 15.4%, which is 39% above where it averaged in 2022, yet asking rents have slipped only 6.6% from their peak. Worse, today’s rent of $10.20/SF is still slightly higher than the $9.66/SF landlords were asking back in 2022, despite significantly more available space on the market.
• Rents today remain 25% above pre-Covid 2020 levels ($10.20/SF vs. $8.16/SF), even though availability is up nearly 70% over that same stretch.

If the market is this tenant-favorable, why are tenants still expected to pay near-peak rent? Why are landlords sitting on an availability rate more than double what it was a decade ago, yet asking prices have barely moved off their all-time highs?

How Prices Are Set

Landlords don’t coordinate pricing, but they do share a tremendous amount of information through the brokerage community and anchor off each other’s pricing. With the Denver brokerage community largely working for landlords, or too frequently acting as dual agents representing both landlords and tenants in the same transactions, landlords have full transparency into what their competitors are doing in real time. Brokers publish almost every lease transaction within their own internal databases. Those databases are then shared across their entire brokerage firm, traded with other brokers and shared with other landlords those same firms represent. Tenant lease terms circulate widely, and Denver landlords generally know who’s completing transactions and at what terms.

Brokers Price-Support the Market

The brokerage business was built over a century ago to provide leasing, property management, investment sales, capital markets, appraisal and any other imaginable service a building owner or developer might need—not to represent tenants in a transparent or independent way. Over time, serving tenants became a byproduct of those core landlord services, all while commercial real estate brokers simultaneously helped support landlords with their pricing and valuation objectives.

Yes, that representative who does the building’s leasing always knows what’s available, but their much larger and longer-term core customer is the building owner, and they aren’t going to work against that relationship to get the tenant the best rates possible. They cannot aggressively test their own landlord’s marching orders or bottom line when market conditions deteriorate. Worse, the tenant working directly with the landlord or through the landlord’s listing team has no leverage, no legitimate relocation options and little real information about what can truly be done in that building or elsewhere. For building owners and their brokers, it’s all about holding the line to maximize the value of the real estate, which comes through monetizing tenants’ rent streams. In that model, tenant rent streams are valued primarily for what they do for the asset.

Lenders and Investors Sometimes Set a Floor

Beyond the owners and landlord brokerage firms that set prices and support them, there’s a structural problem that prevents landlords from simply lowering rents, even if they wanted to. Most commercial real estate buildings have outside investors and debt, often requiring lender approval on leases. Those investors have been promised a certain return and are slow to accept price reductions. When the market softens, some landlords simply maintain their pro forma asking rents or now advertise their space as “withheld” or “negotiable,” while offering significant free rent packages, lease assumptions and other financial concessions necessary to keep or win tenants, all without ever lowering their posted asking price.

The Role of Price Stickiness

Price stickiness occurs when market prices resist change despite a major oversupply of the underlying product. As a business leader or owner, you’ve likely experienced this in other areas. The costs of labor, insurance and shipping all respond quickly to upward pressure but are very slow to recede. Denver landlords and their brokers were able to charge historically high prices of roughly $10.80-$10.92/SF for warehouse space during the 2023-2024 window. Now, with availability at an all-time high and still climbing, many are still pricing to those levels, and getting the market back down toward its pre-Covid range of $7.80-$8.40/SF faces massive structural and psychological resistance, as the asking rent has barely budged in two years, sliding only to $10.20/SF even as available space has grown by roughly a third.

Where It Ends and What to Do

What all of this means for tenants is that you can’t take landlords’ asking prices at face value, nor the brokers who are promoting them as a “market comp” anchor to push tenants into mediocre leases. The Denver industrial market is far more favorable to tenants than most business owners and executives realize. Availability in 2026 has hit a new all-time high, and asking rents have moved only marginally off their peak. But you have to get into the market and test your options to force a genuine process of price discovery, including looking at the growing number of sublease opportunities, rather than assuming asking rents reflect the market you are actually in. That requires a dedicated advocate who acts only on behalf of the tenant and doesn’t work for landlords or a full-service brokerage firm whose business depends on building owners in an industrial market that is, by the numbers, squarely in the tenant’s favor.

Market statistics provided by CoStar Group.

The post Denver Industrial Spike—Why Haven’t Rents Collapsed? appeared first on Hughes Marino.

      

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Historically, Los Angeles industrial markets have trended in an economically rational manner—as availability went down, asking rents went up. However, since 2022, the Los Angeles industrial market has violated all economic norms:

• Just as availability was spiking in 2022 due to new construction coming online for lease, as well as a spike in sublease inventory, landlords and their brokers continued to raise asking rents for almost another two years. 
• Today, availability is up roughly 75% from the pre-Covid 2020 cycle, moving from 5.5% to just under 10%, yet asking rents are 30% higher than they were then.
• Worse, availability today is almost 4x what it was back in the spring of 2021, but asking rents have only come down 20% since their 2022 peak.

If the market is that tenant-favorable, why are tenants still expected to pay so much in rent? Why are landlords struggling to lease roughly 75% more industrial space than they had pre-Covid, yet prices have not collapsed to their pre-Covid level…or less?

How Prices Are Set

Landlords don’t coordinate pricing, but they do share a tremendous amount of information through the brokerage community and anchor off each other’s pricing. With the Los Angeles brokerage community largely working for landlords, or too frequently acting as dual agents representing both landlords and tenants in the same transactions, landlords have full transparency into what each other is doing in real time. Brokers publish almost every lease transaction within their own internal databases. Those databases are then shared across their entire brokerage firm, and that data is traded with other brokers and shared with other landlords that those same brokerage firms represent. Tenants’ lease terms circulate widely, and Los Angeles landlords generally know who’s completing transactions and at what terms.

Brokers Price-Support the Market

The brokerage business was built over a century ago to provide leasing, property management, investment sales, capital markets, appraisal and any other imaginable service that a building owner or developer might need…not to represent tenants in a transparent or independent way. Over time, serving tenants became a byproduct of those core landlord services, all while commercial real estate brokers support landlords in their pricing and valuation objectives.

Yes, that representative who does the building’s leasing always knows what’s available, but their much larger and longer-term core customer is the building owner, and they aren’t going to work against that relationship to get the tenant the best rates possible. They cannot aggressively test their own landlord’s marching orders or magical bottom line when market conditions deteriorate. Worse, the tenant working directly with the landlord or through the landlord’s listing team has no leverage, no legitimate relocation options and little real information about what can truly be done in that building or elsewhere. For building owners and their brokers, it’s all about holding the line to maximize the value of the real estate, which comes through monetizing tenants’ rent streams. In that model, tenants’ rent streams are valued primarily for what they do for the asset.

Lenders and Investors Sometimes Set a Floor

Beyond the owners and landlord brokerage firm players that set prices and support them, there’s a structural problem that prevents landlords from just lowering their rents, even if they wanted to. Most commercial real estate buildings have outside investors and debt, often requiring lenders to approve leases. Those investors have been promised a certain return and are very slow to accept price reductions. When the market softens, some landlords simply maintain their pro forma asking rents or now advertise their offerings as “withheld” or “negotiable,” while offering significant free rent packages, lease assumptions and other financial concessions that are necessary to keep or win new tenants, all without ever lowering their posted asking prices.

The Role of Price Stickiness

Price stickiness occurs when market prices resist change despite a major oversupply of that product. As a business leader or owner, you have likely experienced many situations where prices go up faster than they go down. Consider the costs of labor, insurance, shipping—all things that quickly respond to upward price pressure but are very slow to recede. Having charged historically high prices at $1.50–$1.70/SF for warehouse space in the 2021–2024 window, many Los Angeles landlords are still pricing to those levels. Getting the market back down to $1.00–$1.05/SF (the pre-Covid price) faces massive structural and psychological resistance.

Where It Ends and What to Do

What all of this means for tenants is that you can’t believe landlords’ asking prices at face value, nor the brokers who are promoting them, using them as a “market comp” anchor to push tenants into mediocre leases. The Los Angeles industrial market is much more favorable to tenants than business owners and executives running companies understand. But you have to get into the market and test your options to force a process of price discovery, including looking at one of the many subleases that are likely available, rather than thinking that asking rents are any reflection of the market we are actually in. All of that requires a dedicated advocate, who acts only on behalf of the tenant and doesn’t work for landlords or a full-service brokerage firm whose business depends on building owners in an industrial market that’s in decline.

Market statistics provided by CoStar Group.

The post Los Angeles County Industrial Spike—Why Haven’t Rents Collapsed? appeared first on Hughes Marino.

      

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Notable Leases Reported in Q2 2026

Demand Reaches a Record High, Led by AI

AI companies have accounted for roughly 30% of leasing activity since 2023 and more than three-quarters of net absorption, making the sector the primary driver of vacancy reduction. Tenant requirements in the market have climbed to a record 8.9M SF, up from the previous high of 8.2M SF set just last quarter. Of that demand, 53 AI companies are actively seeking a combined 3.1M SF, and 11 of the 30 tenants in the market for spaces larger than 100,000 SF are AI companies.

New Entrants Are Filling in Outside the Financial District Core

Showplace Square, once a symbol of the market’s post-pandemic uncertainty, is emerging as a distinct AI and robotics cluster on the southern edge of SoMa. Amazon Robotics is reportedly in the final stages of negotiating a 250,000 SF direct lease at 650 Townsend Street, a former piece of Airbnb’s sprawling campus. The building’s owner, Beacon Capital Partners, is working to terminate remaining subleases held by departed tenants to accommodate the deal. Amazon Robotics would join Scale AI, which recently took roughly 180,000 SF in the same building.

In the northern part of the city, the North Waterfront, which had experienced significantly more vacancy than Jackson Square over the past six years, is now benefiting from the volume of companies that are drawn to its accessibility for employees based in North Beach, Pacific Heights and the Marina, as well as commuters from Marin. Jamestown’s four-building Waterfront Plaza project, which reached 66% availability in 2024, is now only 22% available.

Bifurcated Recovery Continues by Building and Location

The recovery remains uneven. Top-tier and recently repositioned buildings are capturing most of the market’s positive absorption, while older, less competitive properties continue to account for a disproportionate share of available space. One Market Plaza’s Spear Tower, for example, has signed four new leases totaling almost 150,000 SF so far in 2026, including Assort Health and three law firms, and is now 67% leased following a renovation program. The nearby 181 Fremont Street tower is nearly full for the first time since Meta vacated its space. Inventory in Jackson Square remains limited, and the Presidio is essentially fully leased.

At the same time, newer buildings that opened into a weak market are still working to fill up. The 650,000 SF tower at 415 Natoma Street, known as 5M, changed hands this quarter through a discounted deed-in-lieu-of-foreclosure transaction after its developer Brookfield’s lender took a loss; the new owners, the Meridian Group and Fenway Capital Advisors, take over stewardship of the Central SoMa building, which remains largely vacant apart from a single tenant. The recovery, while broad, is still concentrated in well-located, highly amenitized buildings. Proximity to the Embarcadero, Financial District BART stations and Caltrain remains the most sought-after attribute, while submarkets like Yerba Buena, Central and West SoMa, and the Mid-Market remain considerably less desired.

Government and Corporate Anchors Add Stability

The largest single lease signed so far in 2026 came not from a technology company but from the City of San Francisco, which finalized a discounted, long-term lease for 502,000 SF at 1455 Market Street. The deal brings the City’s total footprint in the building to more than 900,000 SF. The City intends to consolidate several departments currently housed in older, seismically vulnerable buildings. It is the largest office lease in San Francisco since Facebook’s 756,000 SF commitment to Park Tower in 2018.

Renewals also contributed meaningfully to quarterly activity, with Ripple recommitting to its 124,547 SF full-building lease at 600 Battery Street and PwC renewing for 196,356 SF at 405 Howard Street, both signals that established tenants are choosing to stay put rather than downsize.

Investment Sales Follow Leasing Momentum

Improved leasing fundamentals are attracting capital back into San Francisco office real estate, which is a much-needed continuing development as “Zombie Buildings” remain a major drag on the leasing market in the city. “Zombie Buildings” are properties that are underwater with non-performing debt, which makes investing in spec suites, providing tenant improvement allowances, or even leasing space nearly impossible. Approximately 20 buildings are currently pending sale or on the market, which tenants should welcome as an opportunity to bring more new and improved spaces to the city’s leasable office inventory. Recent examples include the discounted transfers of 415 Natoma Street and 225 Bush Street. While not a distressed asset by most measures, a $700 million acquisition of the Transamerica Pyramid and its two neighboring buildings is noteworthy as it’s the second time this asset has ever changed hands.

What This Means for Tenants Depends on What You’re Looking For

As of the summer of 2026, the conversation with occupiers across every industry has largely settled—the shift from remote or hybrid work policies to “work from work” is done.

For Technology Companies:

Given the massive amounts of venture capital pouring into San Francisco-based AI companies, high-quality (open ceiling, abundant natural light, creative and modern interiors) and move-in-ready (built and furnished) spaces are now leasing within weeks of being listed as available. In some cases, such a space receives multiple offers within days. 

For Law and Professional Service Firms:

Premier and Class A buildings with views remain in high demand, so law and professional service firm users should expect elevated rental rates and limited inventory. If views are less important for your firm, you will have dozens of options to secure already built-out private-office-intensive space.  Overall, beginning the real estate strategy evaluation process well in advance of an occupancy need remains critical to achieving the best results.

Frequently Asked Questions: San Francisco Office Market Q2 2026

Market statistics provided by CoStar Group and San Francisco Business Times

The post Q2 2026 San Francisco Office Market Report: AI Demand Pushes the Recovery into High Gear appeared first on Hughes Marino.

      

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By Charles G. Fertitta Jr.

For many companies, a lease expiration arrives quietly. A calendar reminder triggers a conversation with the landlord, a new rent number is exchanged, a document gets signed and the business moves on. On the surface, nothing remarkable has happened. Beneath the surface, a strategic opportunity has likely just been missed.

The commercial real estate industry uses two words interchangeably that are not, in fact, the same thing. Lease renewal and lease extension describe different approaches to a transaction, with different mechanics, different leverage profiles and, on many occasions, dramatically different outcomes. The confusion between them is not accidental. It benefits landlords, who negotiate these deals for a living, and it can cost tenants, who typically do not.

Understanding the distinction is not a matter of terminology. The process is the difference between a routine transaction and a strategic one, and for most companies it is worth hundreds of thousands to millions of dollars over the life of a lease.

Two Transactions, Two Very Different Outcomes

A lease renewal is a specific, technical event. It occurs only when a tenant triggers a renewal option that was negotiated into the original lease. That renewal option is essentially the only clause in a lease that grants a tenant the unfettered right to remain in its space after the term expires. Without a renewal option, the landlord is free to lease the space to any other party of its choosing once the current term ends. For this reason, a renewal option should almost always be negotiated into the original lease, with only rare exceptions where a specific circumstance makes it unnecessary or not possible.

A lease extension is a fundamentally different transaction. An extension is a negotiation with the existing landlord in which new terms are agreed upon and the tenant remains in place, without ever triggering the renewal option. This distinction is where the leverage lives. A lease extension allows the tenant to reopen far more than the rental rate. Tenant improvement allowances, expansion and contraction rights, termination options, escalation caps, sublease rights and other material provisions can all be revisited. A renewal option, by contrast, almost never provides the opportunity to touch any of those clauses.

The counterintuitive reality is this. A renewal option should be in every lease. But a renewal option should not always be triggered.

A renewal option also acts as a backstop, not always a first move. It is protection against a landlord who might otherwise decline to engage or attempt to replace the tenant. An extension is the vehicle through which a sophisticated tenant actually shapes the economics and the structure of its next term. The quality of a renewal option is determined entirely by the fine print. A single sentence can dictate whether rent is benchmarked against favorable comparables or unfavorable ones, whether the tenant is locked in the moment the option is triggered or free to walk away, whether the economics cover only rent or also free rent, parking and improvement allowances. These are not minor variations. They are the difference between a renewal option that creates leverage and one that quietly erodes it.

The Strategy Most Tenants Are Not Aware Of

A well-represented tenant approaches a lease expiration with a specific sequence in mind.

Long before the renewal option deadline, the advisor begins surveying the market. Real transaction data is assembled. Credible alternative spaces are identified. A clear view is developed of what tenant leverage actually looks like given current conditions. Armed with this intelligence, the tenant advisor engages the landlord in a good-faith conversation about extending the lease. The objective is to negotiate an extension that is materially better than the renewal option would have produced, using the existence of that renewal option as silent leverage throughout the process.

If the conversation with the landlord moves toward a strong deal, the tenant signs a lease extension and the renewal option is never triggered. If the landlord becomes difficult or unresponsive as the deadline approaches, the tenant triggers the renewal option on time by formal written notice, preserving its right to the space. Nothing is left to chance. This is why the length of notice required to trigger a renewal option is itself a meaningful negotiation at the time the original lease is drafted. More runway gives the tenant time to evaluate alternatives and pursue an extension. Less runway allows the landlord to catch the tenant at its least flexible moment.

The Goal Is Not the Lowest Rent

A common misconception about tenant representation is that the objective is simply to drive the rental rate as low as possible. It is not. The actual objective is the best total occupancy cost relative to current market conditions, which is an entirely different measure.

Rental rate is one line in a much larger equation. Operating expenses, improvement allowances, free rent, parking charges, escalation structures, expansion rights, termination options, as well as tenant and landlord credit, all carry real economic weight. A deal with a lower headline rent and unfavorable terms elsewhere can easily be a worse outcome than a deal at a slightly higher rent with the rest of the structure handled well. The way a transaction is structured can also influence how it impacts earnings, cash flow and the internal economics for the landlord in ways that create room for both parties to benefit.

Market conditions matter just as much as the specific lease terms. In a tight submarket with limited options, the correct strategy is often to secure the space at a fair price rather than push aggressively on rate and risk losing the deal to a competitor. In a softer market, a tenant who treats the expiration as a routine renewal is almost certainly leaving significant value on the table. The office market in one city is not the office market in another. Currently, the industrial market on the West Coast is behaving nothing like the industrial market across most of the rest of the country. Asset class alone can be a significant factor. Generic advice about commercial real estate is almost always incorrect advice for a specific situation.

Why This Requires Specialized Representation

A lease event is not a procurement exercise. It is a multivariable negotiation conducted against a counterparty whose entire business is the economics of real estate. Landlords know exactly where their floor is. They track every deal they sign, every concession they grant, every transaction in their competitive set. Tenants, even sophisticated ones with experienced finance teams, rarely have that visibility.

Published market reports do not close the gap. A rental rate number in a report reveals very little about the concessions that make up occupancy cost, such as operating expenses, free rent, tenant improvement allowances, parking charges and the financial position of the landlord behind it. One data point in isolation is not market intelligence. It is a headline.

This is where a dedicated tenant advisor provides value. An advisor who exclusively represents tenants, not landlords, brings an uncompromised perspective to the negotiation. The best in the profession act as a watchtower for their clients, seeing the full landscape, identifying the leverage points, recognizing which language in the lease matters and why, and applying that knowledge across every clause in the document rather than only the ones that are easy to measure.

At Hughes Marino, every lease expiration is evaluated as a strategic opportunity rather than a routine transaction. Our advisors approach each engagement by surveying the competitive market, building genuine leverage, analyzing the full economic picture beyond face rent and negotiating every term with the tenant’s long-term interests at the center. Tenant advisory services are compensated through landlord brokerage commissions, which are built into commercial real estate transactions whether or not the tenant has its own representative. The cost is already in the deal. The only question is whose interests that expertise is advancing.

Frequently Asked Questions

A Strategic Moment, Not a Routine Transaction

Every lease expiration is a strategic moment for the business it belongs to. The companies that treat it as one consistently achieve better economics, stronger flexibility and leases that are built to support where the business is going rather than where it has been. The companies that treat it as a routine transaction often pay a premium that rarely appears on any single line of their financial statements, but accumulates across the life of the lease into real money.

The question is not whether to renew. The question is whether the lease signed next is the lease the business actually needs.

The post The Difference Between a Lease Renewal and a Lease Extension, and Why It Matters to Your Bottom Line appeared first on Hughes Marino.

      

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The Market Is Weaker Than the Headlines Suggest

Most reporting tracks vacancy, which only counts space sitting physically empty. It leaves out hundreds of millions of square feet of space that companies have listed for sublease, excludes buildings under construction, and also excludes space for lease that is not quite vacant yet. Add that back in, and the real supply competing for your tenancy is far larger than the published figures, as much as 25% to 35% more. Landlords understand this, while tenants do not, which is why so many business owners and management teams underestimate how much room they have to negotiate.

Landlords Are Propping Up Asking Rents With Concessions

Rather than cut the rent that gets reported to lenders and the market, landlords are giving value back in quieter ways: months of free rent, generous allowances to build out or improve the space, and even cash allowances toward the cost of moving. The headline rate stays high to protect the building’s value on paper while the real effective cost of occupancy drops well below it. A tenant who knows what to ask for can capture that gap. A tenant negotiating alone often does not know it exists, or even what a good deal looks like, as they have nothing to measure it against.

Why Starting Early Matters

Often, tenants’ instinct when expiration is a year or two out is to wait, and then call the landlord about a renewal proposal when the date gets close, or when their renewal option window opens. But the moment your landlord believes your desire and intention are to renew, your leverage evaporates, if you even had any before, given you were not in the market getting knowledgeable about your choices. A landlord who thinks you are seriously considering other buildings is now on their heels and has to compete with the open market. In today’s market, a new competing landlord will often work harder and be more aggressive to win your business than your current one will to keep it.

Turning that leverage into a better deal takes time and preparation, mostly done by a competent tenant representation advisor. Touring alternatives, running numbers on staying versus relocating or buying, and letting landlords compete for you all take months to do properly. If you begin six months before expiration, you are negotiating against your own deadline as you don’t have time to do permitted tenant improvements or execute on a complex move. Begin a year or two ahead, and renewing becomes one option among several, rather than the only move left.

The Conditions Are Not About to Disappear

In the recent tighter markets of the past, landlords would typically not want to engage in renewal discussions more than a year in advance, often believing that future rents a year or two out would be higher, so they did not want to lock in early. Those days are gone, as most building owners in most markets are very aware that this bottom we are hitting for commercial space will likely last some years. While this market has reset as tenants often need less office space, and industrial and lab space face overbuilding, conditions are likely to favor tenants for years to come rather than quarters. What shifts over time is your own standing with your landlord. The closer you get to expiration without a plan, the weaker that standing becomes, no matter how favorable the market is.

A short conversation well ahead of your date is what distinguishes reacting to an expiration from using it to your advantage. Hughes Marino works for tenants of commercial space, and not landlords, so every negotiation we lead and number we run is built around your bottom line.

The post Why It Pays to Be Proactive and “Control the Game Clock” on Your Expiring Lease appeared first on Hughes Marino.

      

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Q: What’s something that fueled your growth that most people would never see from the outside?

Jason: People assume growth comes from strategy decks and market timing. The truth is quieter than that. What fueled us was a decision we made early and never walked back—that we would sit on one side of the table. We represent tenants, not landlords, and we turned down a lot of revenue over the years to protect that. From the outside, it looks like a positioning choice. From the inside, it was a values choice that compounded. Clients could feel that there was no second agenda in the room, and that feeling, more than any pitch, is what built this company.

Shay: For me, it’s the unglamorous part that no one sees. We knew when we started the company that one thing would be true no matter what happens—that no one would outwork us. We also were relentless in investing in great people long before there was any proof it would pay off. We believed in people before they believed in themselves, and we kept pouring into them long before they had any success. From the outside, it can look like we simply got lucky with talent. The truth is we made a choice to invest in our team, to develop them, to champion them and to refuse to give up on anyone who shared our commitment and our values. That kind of belief compounds quietly and one day you look up and realize it built the entire company.

Q: What’s one decision that looked wrong in the moment but proved to be exactly right?

Jason: When we decided to open our first expansion office in Orange County, the timing looked indefensible—the economy, the expense, the competition. Everyone who looked at us from the outside thought we were nuts. But we’ve learned that the right people and the right culture don’t wait for the perfect quarter. We went in, and for the first stretch it was hard and it was lonely and we questioned it. What we couldn’t see yet was that the people we planted there would become some of the best of the entire company. The lesson stayed with us: you don’t bet on the market, you bet on the people, and people are almost never a mistake.

Shay: Saying no to revenue, and saying yes to the right people, when the spreadsheet would have told us to do the exact opposite. There were times we walked away from business that didn’t fit our values, and times we took a chance on someone who didn’t have the résumé but had the talent, the hunger and the character we knew we could build around. In the moment, those choices felt unconventional—we were choosing our gut over the safe path, but we have always made decisions based on our gut and it has served us well. Some of the most extraordinary members of our team are people we believed in before anyone else did, and I wouldn’t trade a single one of those “risky” bets we made.

Q: Running a company together as a family—what does that actually look like, and is there a cost you didn’t expect?

Jason: The romantic version is that we finish each other’s sentences in board meetings. The real version is that the company doesn’t stay at the office—it comes home, it sits at the dinner table, it’s there on the drive and on the vacation that was supposed to be a vacation. The cost we didn’t expect wasn’t time; we knew we’d all work extremely hard. It was learning to be partners in two different ways at once and not let the harder conversations of one bleed into the other. We’re still learning it. What we’d tell anyone doing this is that the business will always ask for more than you have—the discipline is deciding, together, what you protect.

Shay: Jason is right that the company follows us home and wherever we go, but it is challenging, rewarding and fun at the same time. While there are tradeoffs, and it’s certainly not for everyone, I wouldn’t trade it for anything. It has been incredible to build a thriving company with our family, using all of our different but complementary strengths to make the company better in all aspects. And it is a huge asset that we have each other’s backs unconditionally, we value and respect each other’s opinions immensely, and we get to do something incredibly meaningful together that we are all very proud of. That is a gift I am beyond grateful for as a founder, a business leader, a wife and a mom.

Q: What’s the most common reason talented people fail to reach their potential?

Jason: It’s almost never ability. The most talented people who stall do it because they’re protecting something—a perceived reputation, a comfort, an old version of themselves that was rewarded for being the smartest one in the room. Growth requires you to be a beginner again, repeatedly, and a lot of gifted people can’t tolerate that feeling. The ones who become exceptional are the ones who stay coachable long after they’ve earned the right not to be. We’ve watched people with half the raw talent pass others simply because they never stopped asking what they were missing.

Shay: So often, it comes down to fear—especially the fear of failing in front of other people. I’ve watched incredibly talented people hold themselves back simply because they weren’t willing to potentially look foolish trying something new or really stepping up their game. The people I’ve watched soar here are the ones who give themselves permission to stumble and to keep going anyway. Talent will only take you as far as your willingness to take risks and keep going if you don’t get what you want the first time. The magic is never in avoiding the fall. It’s in how quickly you choose to get back up and try again.

Q: If Hughes Marino doubled in size over the next five years, what would you be most determined not to lose?

Jason: The feeling that this is still a family company and that culture is extremely important, no matter how many families are in it. Scale has a way of quietly trading warmth for efficiency, and you don’t notice the trade until the culture you spent 15 years building has thinned out into a logo. We’d be most determined to protect the thing that doesn’t show up on any growth chart—that someone’s first day here still feels like being let in on something, not processed into something. If we double and lose that, we didn’t grow. We just got bigger.

Shay: That every single person feels appreciated and that no one here ever becomes a number. The thing I would protect with everything I have is our culture of championing the underdog and noticing the person who has gone quiet in the room. As you scale, it is so easy to let warmth quietly slip away without even realizing it’s happening. I never want us to grow so big that we stop celebrating each other’s wins, showing up for each other’s hard days or believing in someone’s potential before they can see it in themselves. If we double in size and every person still feels like they belong to a team that cares about them, supports them and has their back, then we will have stayed true to our roots from the beginning.

Q: What’s something the other person does exceptionally well that doesn’t get enough credit?

Jason: Shay reads people in a way that can’t be taught. In a room full of numbers, she’s the one paying attention to the person who’s gone quiet, and she’s almost always right about why. People credit the company’s culture to programs and awards, but a lot of it traces back to her noticing things the rest of us miss and refusing to let them slide. It’s the least visible kind of leadership and, I’d argue, the most important.

Shay: Jason’s generous spirit. Everyone sees the dealmaker and the visionary, but what doesn’t get nearly enough credit is how genuinely he supports and celebrates other people. Behind the scenes I get to see how he takes calls from anyone on our team within seconds of them calling him no matter how busy he is, how he lights up when someone on our team wins and how quick he is to give credit to everyone else long before he would ever take any for himself. I often think he wants success for others more than they want it for themselves, mostly because he knows what is possible and believes in them long before they do. Despite his immense success, he is incredibly humble and always deflects credit for the amazing team he has coached to success.

Lightning Round Q&A

1. Favorite HMism?
   • Jason: Success is not an entitlement. You need to earn it every day.
   • Shay: Everything matters. Literally everything.
2. One word for the next chapter?
   • Jason: Deeper
   • Shay: Stronger
3. Coffee or tea?
   • Jason: Coffee
   • Shay: Tea
4. Early bird or night owl?
   • Jason: Early bird
   • Shay: Night Owl
5. Strategy or execution?
   • Jason: Strategy
   • Shay: Execution
6. Data or intuition?
   • Jason: Intuition
   • Shay: Intuition
7. Most overrated business buzzword?
   • Jason: Synergy
   • Shay: Optimize
8. Go-to comfort food?
   • Jason: Chocolate chip cookies
   • Shay: Salty dark chocolate
9. Favorite way to recharge?
   • Jason: Vacation to the mountains
   • Shay: Vacation to the mountains too, and family dinners at our house
10. Most-used emoji?
    • Jason: Fist bump
    • Shay: Heart

Stay tuned for our next Q&A with more insightful (and fun) questions!

The post Insights With Jason & Shay: A Candid Q&A on Growth, Culture & the Cost of Building Something Real appeared first on Hughes Marino.

      

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