Greetings, and welcome to Hudson Pacific Properties Second Quarter 2019 Earnings Conference Call. At this time, all participants are in a listen only mode. A question and answer I would now like to turn the conference over to Laura Campbell. Thank you. Please go ahead.
Thank you, operator. Good morning, everyone. Welcome to Hudson Pacific Properties' Q2 2019 earnings call. Earlier today, our press release and supplemental were filed on an 8 ks with the SEC. Both are now available on the Investors section of our website, hudsonpacificproperties.com.
An audio webcast of this call will also be available for replay by phone over the next week and on the Investors section of our website. During this call, we will discuss non GAAP financial measures, which are reconciled to our GAAP financial results in our press release and supplemental. We will also be making forward looking statements based on our current
statements, which
we undertake no duty to update. With that, I'd like to statements, which we undertake no duty to update. With that, I'd like to welcome Victor Coleman, our Chairman and CEO Mark Lamas, our COO and CFO and Art Suazo, our EVP of Leasing. Victor will give an overview of our performance, Art will discuss leasing activity in our markets and Mark will touch on financial highlights. Note that we'll be joined by other senior management during the Q and A portion of our call.
Victor?
Thanks, Laura, and welcome everyone to our Q2 2019 call. We had a very strong second quarter signing over 500,000 square feet of office leases at exceptional 48% 27% GAAP and cash rent spreads respectively. And this brings our year to date leasing activity to 1,500,000 square feet with 41% and 29% GAAP and cash rent spreads respectively putting us on pace for one of the best years ever for leasing activity within our office portfolio. With Maxwell now delivered for tenant improvements, our nearly 1,000,000 square foot pipeline of active development and redevelopment projects is 89% leased. As such, our leasing activity this quarter centered around our stabilized and in service assets And the lease percentages for which both ended quarter the quarter up about 150 basis points at 96.6% and 94.5%, respectively.
While we had great activity throughout all of our markets, 80% of the deals we signed were our Bay Area assets and 70% or 350,000 square feet of deals were signed at our Peninsula and Silicon Valley assets. Notable Bay Area deals include approximately 40,000 square foot lease with Google backfilling the balance of the SS and C space at Ferry Building as well as the 55,000 square foot lease with Heritage Bank at Concourse in North San Jose with a 27% mark to market. Further, accounting for deals renewed, back filled, in leases, LOIs or proposals, we had successfully addressed currently 65% of our remaining 800,000 square feet of 200 of our 2019 expirations, which are currently 16% below market. In terms of our Sunset Studios portfolio, we continue to benefit from demand well in excess of supply for stages and production offices in Los Angeles as content providers increasingly look to lock up studios under long term agreements. We recently had 2 new inquiries from major TV producers for long term stage and production office leases, even as we actively work to accommodate existing clients like ABC Disney, Warner Media, HBO, CBS, Viacom and Amazon on an ongoing basis.
Our same store studio portfolio was 92.6% leased over the last 12 months in line with the overall Los Angeles studio market with average rates over the last 12 months were up 5.6% to $39 per square foot. We also had a busy quarter in terms of acquisitions and added several new value creation repositioning and development opportunities to our pipeline of projects. We closed our purchase of Vental Center with Blackstone where we will capture upside from both modernizing the existing 1,450,000 square foot collection of assets and building 1 of the last remaining approximately 450,000 square foot development sites in prime downtown Vancouver. We also formally opened our Vancouver office led by seasoned real estate executive and Vancouver native Chuck We providing us with the same strong local presence that we benefit from all of our other markets. We're actively looking for other opportunities in Vancouver, which could possibly be in partnership with Blackstone both on the office and the studio side.
We also funded the deposit of an $86,000,000 purchase of condo rights to build an approximately 538,000 square foot office tower in Seattle's Denny Triangle neighborhood, which we're calling Washington 1000. This is an exceptional site, particularly as it is adjacent and under construction of a $1,800,000,000 Washington State Convention Center expansion totaling 1,500,000 square feet will literally transform this neighborhood bringing both new residential and retail amenities and over $50,000,000 of streetscape improvements. With Washington 1000, our Denny Triangle portfolio totals more than 1,000,000 square feet across all three assets and we will be in a position to commence construction for this project mid-twenty 21 upon delivery of the office towers podium. In terms of dispositions, we closed sales of both the campus center improvements and land for a combined $148,000,000 which represents another successful execution by our team on the capital recycling front. And Mark's going to provide some more additional commentary on these transactions later in the call.
Finally, I'd like to mention several ESG related milestones for the company year to date. We recently published our inaugural corporate responsibility report highlighting our 2018 accomplishments and added Energy Star Partner of the Year and Greenlease Leader to our 2019 accolades. And last week, we welcomed Natalie Teer to our team as Vice President of Sustainability and Social Impact, and she's going to be working with all levels of our organization to find innovative ways to expand further our ESG platform in strong alignment with our business strategy and core values. With that, now I'm going to turn it over to Art for further commentary on our leasing end markets. Thanks, Victor.
Big picture in terms of fundamentals, the Q2 was characterized by significant even record setting positive net absorption across our market as global tech and media firms buy for large blocks of space. Our office leasing deal pipeline remains strong at over 1,000,000 square feet even with our robust activity in the first half of twenty nineteen. In Los Angeles, tech and media users continue to expand and the market had 5 deals over 100,000 square feet in Q2. In Hollywood, for the quarter Class A vacancy dropped 310 basis points to 6.8% and rents increased 2.2% to $60 per square foot with 71,000 square feet of positive net absorption. We have multiple tenants both full and partial building users interested in Harlow, which delivers in the Q1 of next year.
Our 140,000 square feet of remaining 2019 expirations in Los Angeles are 11% below market and mostly comprised of Saatchi and Saatchi's 113,000 square foot lease at Del Ambo. Saatchi is a known vacate and we are proactively marketing the asset to full and partial building users. Our stabilized Los Angeles portfolio is 98.8 percent leased and in place rents are 14% below market. San Francisco exemplifies the abundance of large block tech tenant demand with 11 deals over 100,000 square feet signed in the first half of twenty nineteen. This is driving asking rents and pre leasing even for projects still in the planning stages as the city's development pipeline is fully leased through 2022.
In the city, for the quarter Class A vacancy dropped 40 basis points to 2.5 percent and rents increased 2.4% to $90 per square foot with 210,000 square feet of positive net absorption. We have virtually nothing left to address in that market in terms of expirations. Our stabilized San Francisco portfolio is 97.5% leased and in place rents are 32% below market. The San Francisco Peninsula, which for the purposes of this discussion includes Palo Alto, had another strong quarter, led by notable activity in the Foster City and Redwood City Redwood Shores submarket. Along the peninsula in the quarter, Class 8 vacancy was down 20 basis points to 7.5 percent and rents increased slightly to $89 per square foot with 182,000 square feet of positive net absorption.
We have coverage on 65% of our 286,000 square feet of remaining 2019 expirations along the peninsula, which are 16% below market. We are now negotiating with the tenant to backfill 2 thirds of Stanford Health's former 63,000 Square Foot Space at Page Mill Center. And after renewing Baker McKenzie at another Clock Tower building, we are in leases with a tenant to backfill the former 34,000 square foot space. Our stabilized Peninsula portfolio is 90.8% leased and in place leases are 10% below market. Sotham Valley had an exceptional quarter with 2,800,000 square feet of positive net absorption, the largest quarter of occupancy gains in that market's history.
North San Jose, where all but one of our Valley assets are located, had a particularly strong quarter as global technology firms like Adobe, Google and now Uber continue to take down large blocks of space. In North San Jose in the quarter, Class A vacancy dropped 800 basis points to 11% and rents increased 3.8% to $49 square foot with 787,000 square feet of positive net absorption. We have coverage on more than 70% of our just over 200,000 square feet of remaining 2019 expirations in Silicon Valley. These are comprised mostly of small sub 10000 Square Foot leases and in aggregate 17% below market. Our stabilized Silicon Valley portfolio is 97.6% leased and in place leases are 8% below market.
Downtown Seattle remains sought after by tenants with its access to talent and mix of amenities in retail. There are no 100,000 square foot blocks of available blocks at existing assets in the market and companies with large requirements must look to under construction projects, which are substantially pre leased. In Downtown, for the quarter, Class A vacancy was essentially stable at 6.9% and rents increased 3.9 percent to $47 per square foot with 490,000 square feet of positive net absorption. While there are 2 years out from starting our construction on Washington 1,000, we feel very confident about the project's leasing prospects given its location and design as well as the combined 5,500,000 square feet of 25,000 square foot plus requirements for the Seattle and Bellevue market. We have very little in the way of remaining 2019 expirations in Seattle.
Our stabilized Seattle portfolio is 96.9 percent leased and in place leases are 17% below market. In Vancouver, we continue to see strong interest from both Canadian and U. S.-based technology tenants with several major deal announcements anticipated in the city in the coming months. Supply is the major constraint to absorption with sub 3% vacancy and a well leased development pipeline. For downtown, in the quarter, Class A vacancy fell 30 basis points, 2.8 percent and rents increased 2.6 percent to CAD61 with 64,000 square feet of positive net absorption.
We have coverage on essentially all of our 118,000 square feet of remaining expirations at Bentall Center, which are 27% below market. Deloitte's 93,000 square foot lease is a known vacate and we feel good about the interest that that space has on full users and single floor tenants, as well as the 1,500,000 square feet of active requirements in that overall market. Bentall Center is 98.2 percent leased and in place leases are 21% below market. Finally, I'd just like to frame up the status of our lease up portfolio. Three properties, 4th Intraction, Metro Plaza and Shore Breeze are either over at or just shy of 92% leased, essentially stabilized.
Other than 2 small repositioning redevelopment assets, 95 Jackson and 10850 Pico, we have 2 remaining lease up assets, Metro Center and 333 Twin Dolphin. On a combined basis, 80% of the square footage at Metro Center and Twin Dolphin has rolled since purchased. Yet, we have increased the lease percentage by almost 1,000 basis points. In addition, we have increased NOI at those two properties by over 130% in aggregate. So while we're not fully stabilized, both continue to be a source of meaningful NOI growth.
And with that, I will turn the call over to Mark for financial highlights. Thanks, Art.
In the Q2, we generated FFO excluding specified items of $0.48 per diluted share compared to $0.46 per diluted share a year ago. Higher occupancy and rental rates across both the office and studio portfolios together with asset acquisitions, specifically 10,850 Pico and the Ferry Building, were the primary drivers of this year over year increase. There were no specified items in the Q2 of 2019 or 2018. In the Q2, NOI at our 32 same store office properties increased 12.7% on a GAAP basis and 11.1% on a cash basis. Given these strong results as well as our expectation of that portfolio's continued performance through year end, we are increasing our full year same store office cash NOI guidance for the 2nd consecutive quarter from a 3.5% to a 4.5% midpoint.
Our same store studio NOI decreased by 8.1% on a GAAP basis and 9.3% on a cash basis. While 2nd quarter same store studio cash NOI came in below the 5% mid point of our previous full year guidance range, we have in fact increased our full year same store studio cash NOI guidance midpoint to 5.5% given our expectation of the studio's performance through the remainder of 2019. In terms of capital markets activity during the quarter, on June 14, we completed an additional public offering of $150,000,000 of senior notes under our February 27, 2019 indenture pursuant to which the operating partnership had previously issued $350,000,000 of 4.65 percent senior notes due April 2029. Both issuances have substantially identical terms. Net proceeds for the additional offering were approximately $155,300,000 dollars 150,000,000 of which we used to pay down our revolving credit facility.
As Victor mentioned, on June 5, we successfully closed our joint venture purchase of Bentall Center. From an accounting perspective, this acquisition marks our first significant unconsolidated real estate investment. As such, in addition to the information historically provided for consolidated portfolio in our supplemental report, we have added financial and property information for the company's share of both consolidated and unconsolidated investments. We hope you find this useful. Before turning to guidance, I want to provide further details regarding the recently completed Campus Center sales.
As Victor mentioned, on July 24, the company sold the Campus Center improvements for approximately $70,300,000 before credit expirations and closing costs and applied $70,000,000 of proceeds to pay down our revolving credit facility. On July 30, we sold the Campus Center land for approximately $78,100,000 before credit prorations and closing costs and paid down an additional $75,000,000 on our revolving credit facility. As for the earnings impact of these sales, you may recall that we reclassified both these properties as held for sale in the Q1, which required us to recognize the anticipated loss associated with the improvement, but not the anticipated gain associated with the land. With both sales now complete, we expect the gain associated with the land to essentially offset the Q1 impairment loss. Our Q3 filings will provide a final accounting for these dispositions.
Turning to guidance. We are increasing and narrowing our full year 2019 FFO guidance range from $1.96 to 2.04 per diluted share, excluding specified items to $1.98 to $2.04 per diluted share, excluding specified items, thus raising the midpoint from $2 to $2.01 per diluted share. Specified items consist of those identified with our Q1 results. It otherwise excludes the impact of unannounced or speculative acquisitions, dispositions, financings for capital market activity. As noted earlier, we have again increased our office and studio same store cash NOI growth assumption midpoint to 4.5% and 5.5%, respectively.
With that, I'll turn the call back over to Vic Garrett.
Thanks, Mark. To close, we remain bullish on the performance of our office and studio portfolios through year end. The continued strength of our market is driven across the board by the outsized growth of tech and media tenants provide us with the perfect runway to execute on our business priorities whether leasing, capital recycling, capital markets or otherwise. I'd like to close the call by giving special recognition to the Hudson Pacific team as we head into our 10th year as a public company and look back at the extraordinary growth across assets, markets and now borders. I'm so proud of our unique and vibrant culture, the exceptional talent that we have throughout the organization and how all of us strive to embody the Hudson Pacific division and mission on a day to day responsibilities.
It's truly remarkable. To everyone listening, we appreciate your support. We look forward to updating you next quarter. And operator, with that, let's open the line for questions. Thank
Our first questions are from the line of Jamie Feldman with Bank of America.
Great. Thank you. I guess just to start, can you talk about the decline in same store NOI in the studio portfolio year over year? I know you had one studio out of service. I'm just curious what the numbers would look like on kind of a clean apple to apple comparison?
Well, everything was in service, Jamie. But the sort of simple explanation focused on the same store, I think what you're saying is the Eleanor, those 2 small properties are not flowing through the same store, which is correct. That's roughly 52,000 feet. But of the 1,200,000 square feet running through the same store, the year over year difference is largely driven off of partly elevated fixed costs. If you look at our MD and A, for example, we've enhanced certain services like our parking services, security services, janitorial services in keeping with finding these longer term deals and wanting to kind of elevate the level of service associated with that.
And that's attributing, contributing, call it, on a run rate basis about a $500,000 a quarter in higher operating expenses. It just so happens though in the current quarter, we also happen to have higher R and M expense. That's probably not going to be as regularly recurring. So we had somewhat higher elevated expenses associated with that. Meanwhile, the other property related revenue was lower relative to the Q2 of last year, which is not that uncommon.
We typically see a slowing in production activity in the Q2 in keeping with production cycles. It just happened to be considerably lower than last year by to the tune of about $2,000,000 less in other property related revenue. So the combination of the lower production revenue and the higher elevated expenses contributed to that quarter year over year decline in NOI on the studios.
Okay, thank you. That's helpful. And then switching gears to Silicon Valley and the Peninsula, I mean, a very nice pickup in the market and occupancy this quarter and certainly you guys sound a lot more upbeat as to some of your peers. What do you think the follow through is here? How much how long can kind of improved market conditions
Peninsula currently today has seen rent growth quarter over quarter and a massive 10% decline in any sublease space in the marketplace. With the new product coming online, it's still in the 70% pre lease basis. Peninsula is looking we've been talking about this for a long time. I mean, there is no space in the city. So it's moving down to the peninsula.
It's exactly what we said was going to happen is happening. And we don't see this ending anytime shortly. There still is tremendous demand on the VC investment side. There's tremendous demand on cybersecurity, aerospace, logistics, AI and the growth prospects are currently going there. I mean we're also seeing the future growth in the campus facilities expansion around Google and Facebook as well.
So it's positive for the foreseeable future, at least in the next 24 months, we don't see any decline at all.
And then are there other submarkets you'd want to expand into for more of a value add stake?
In California, no.
Even on the Peninsula or in the Valley, no?
No. I mean, I think we're pretty comfortable between San Jose and San Francisco. I think that seems to be the area that we're going
to continually focus on. Okay.
And then finally for me, can you provide some details in terms of timing and spend for Bentall and 1,000 Washington?
Well, 1,000 Washington, which is in the disclosure document right there, on page, I think it's 35. So it's right there. We're not starting till at the earliest it's going to be late 2021. And in terms of Bentall, we are in the early phases of evaluating The demand there as in the prepared remarks you heard, I mean it's sub-three percent vacancy. Right now the demand is very high in terms of I think it's 1,500,000 square feet of current demand.
And we're the last of sort of that CBD Downtown Vancouver 500,000 square feet. We have a fully approved site. So we could break ground, my guess is, I don't know, Q1 of 'twenty two sorry, 'twenty one, I guess, which is like 18 months from now, maybe something to that effect.
Our next questions are from the line of Nick Uhlicha with Scotiabank.
Great. Hey, everyone. Just following up on development, do you mind giving an update on a couple of other projects Cloud 10, Sunset Gower, the future development there, when those might start? And I guess just overall, as we're thinking about the development pipeline and all these additional projects that could start, how you're thinking about funding those?
So, okay. Let me just sort of reiterate the Cloud 10 project 400 plus 1000 square feet, we're in design phases now. But as we said, that's going to be a build
to suit. We're not going to break
ground there unless we have and I don't know, Nick, what that percentage is, but it's substantial leasing. So I would say 50% plus pre lease before we would do that. We have a final design of that asset. And as you well know, that market has a lot of demand there right now. And so I think we're probably we're through the entitlement process right now in the next 100 days or so, we should be completed there.
In terms of Sunset Gower, the entitlement should be completed by Q2 of 2020 for both assets. If you recall, it's 165,000 square feet with studio facilities in 1 and then another 300 plus 1000, 350,000 square feet in the tower on Sunset. That is currently today our leasing team has got a lot of interest on that. And I think that also will be a pre leased transaction before we break ground on that. There needs to be a number of other things that has to happen at Gower in terms of building parking and moving around some of the open space to accommodate the filming and there's also some energy issues that we're working on as well.
So the combination of that should take us out, as I said, to 2021 where we can start that development at the same time. We're optimistic though, but by the time we're getting ready to go, we'll have that substantially are all pre leased. Our balance sheet, Mark can dig into it. As you know, we've got a lot of capacity on leverage today. We've got we're looking at other we just closed, as we said, campus.
We're looking at maybe looking at maybe in an asset or 2 that may also fall into disposition category. We're very comfortable with that in terms of our balance sheet and capacity going forward. And so we don't need any equity, additional equity for the current projects that we're looking at right now.
Okay, that's helpful. I guess just, I mean, would you look to pre fund some of that development? I mean, as we think about kind of managing earnings dilution, how are you thinking about that?
You mean, well, I mean other than architectural soft costs and some architectural entitlements, no, nothing else.
I just meant from like an asset sale standpoint, are you trying to time that up with the development spend or could you look to sell assets ahead of what could be a larger capital spend required for the development pipeline?
They're not mutually exclusive. I think, listen, we're going to Nick, we're going to look at the development opportunities going forward and the demand for the leasing around that. And as I said, if there is assets in the portfolio that we don't think are future accretion or there's an opportunity that we're not going to grow in the marketplaces, we'll sell those assets, but they're not mutually exclusive.
Okay. And then, that's helpful, Victor. And then just I just want to follow-up, you mentioned that you could have some you're looking at some additional office and studio deals with Blackstone in Vancouver. How should we think about that relationship right now? I mean, is it only in Vancouver?
Are you looking at other markets? How should we view that partnership?
Listen, I mean Blackstone and Hudson have a great relationship. I think the appetite is mutually agreeable for us to do transaction together. Obviously, it makes a lot of synergistic sense in Vancouver. We have 2 other great JV partners in CPP and Alliance in the Bay Area and in Seattle that are looking for more deals with us. And so it's going to be project by project driven.
It's not some programmatic transactional standpoint going forward. But I think we're fortunate to have some great capital partners who are engaged and want to do more business with Hudson.
All right.
Appreciate it.
Thanks, Nick.
Our next question comes from the line of Alexander Goldfarb with Sandler O'Neill.
Hey, good morning out there. Just a few questions. First, just Mark, really quick, the land game that you spoke about, that's not in FFO, right? That's just it's an accounting entry, but it's you're not including that in as part of FFO, right? Correct.
Okay, okay. Cool, cool, cool. And then getting to the studios, going back to Jamie's question. I thought you guys were making a big push to do more annualized leasing where you don't have just a production schedule, they move in, do the shoot, move out, but they are renting the studio more full term. And I understand that you're increasing the level of service and that raises the cost.
But I would think those 2 would sort of offset each other and that having more annualized revenue that's consistent would offset the elevated expenses. So maybe it's just a year over year that you're ramping up those expenses and next year will level out, but just curious if you can comment a little bit more?
Well, I mean you're dead on and actually, if you look at the quarterly results, you'll see that revenues on a year over year basis for the Q2 were actually slightly higher even though we had a substantial decline in other property related revenue, which is exactly your point. Those longer term contracts are steadying and actually providing nice annual year over year increases in rental revenue. It's just that the rental revenue is different from and the stability associated with that and the lack of downtime and all those benefits of long term agreements is different from whether or not a tenant is actually in production. And the product it's the production activity that drives that one other line item, the other property related revenue. So it is clearly providing the benefit that is to say we saw no decline in overall revenue.
It's just that we did not get the lift, if you will, of the higher revenue associated with production.
Okay. Okay. I think I got it. And then just finally, Victor, just going back last quarter we discussed, you mentioned your comments on Bellevue, but the articles that come out, the investment that Amazon is doing and presumably others will do in the Bellevue market seem to make it a big growth market. So are there things that would change in your view as far as the competitive set that would make it attractive to invest?
Or are there certain limitations that as you guys look at that versus Seattle that it just it doesn't compare to what your potential is in Seattle versus starting to make Bellevue a point of focus?
Well, so as I mentioned last quarter, Alex, we're looking at Bellevue independent of Seattle. So it's not one or the other. We're actually currently looking at a project there right now. We did evaluate a couple of the transactions that have traded. And so it's a marketplace that we will consistently look at because of our presence in the Pacific Northwest.
I think if you were to ask a preference, the preference would be in Seattle, there are just more opportunities. There are limited opportunities in Bellevue. And so it's going to be a lot more competitively the landscape is more competitive given the fact that there's limited opportunities. There are more opportunities that we are seeing in Seattle and we're going to continue to see and work on.
Okay. Thank you, Victor. You're welcome.
Our next questions are from the line of Blaine Heck with Wells Fargo.
Thanks. Victor, just wanted to ask about the longer term strategy in Vancouver. Fundamentals seem to be great in the market. You guys have a little bit of work to do at Bentall with some of the renovation activity that's going to be happening there, and you have the opportunity to build. But I guess past that, are you guys seeing many deals on the market?
And I guess how do you think about the opportunity to acquire more space in such a small and kind of tightly held office
market? It's a great question. As I said, we're looking currently today at a couple of office deals. We are spending more time on some of the studio deals there right now. And so we're going to be equally weighting our energy on that.
I do think that we will have the opportunity to acquire more in Vancouver. The fundamentals as you mentioned Blaine are excellent there. I think we do have a tremendous amount of work to do at Bentall. But part of it is, as I mentioned in my prior comments, publicly on this is going to be some low hanging fruit. And I think some of it's going to be us being a differentiator in that marketplace because the competition, dare I say, has really been resting on their laurels and we're going to try to make an impact.
And by doing so, we will de facto see deals. So I'm confident that we're going to grow that portfolio. I'm confident that we'll grow it both on the studio and the office side and we're active there. And as you well know at any new marketplace, when you enter a marketplace, the new guy sort of gets a shot at what's going on and I think that's our advantage right now.
Okay. That's helpful. And then just a quick second one. I think Stanford Health had their move out this quarter, but occupancy at Page Mill didn't come down. I guess should we expect that to be a little bit of an occupancy headwind in the Q3?
No. So, yes, you're right, Dave. We did move out right we're in the process of repositioning the space, making it market ready. We're also doing improvements to the common areas, the interior, the exterior and amenitizing the space like we've done kind of across our portfolio. We have activity on a 5th 2 thirds of probably 45,000 to 50,000 square feet of that space right now.
We feel pretty good about that prospect.
Got it. Thanks, Eric.
Our next questions are from the line of Emmanuel Klushman with Citi.
Hey, everyone. Netflix has been out there talking about increasing their studio exposure in other markets. You guys in the past have spoke about expanding to other markets. Can we tie those two thoughts together and see if you have any interest in going outside of the ones you spoke about at your last Investor Day?
Well, no, Manny, I mean, we've talked and publicly said that we are looking beyond just Vancouver in studio markets. I mean, we're looking in New York, we're looking at Toronto. And if that relationship is such that Netflix is looking in the same markets, clearly we're in conversations with them and we will continue to have those conversations. But it's not going to be because they're in those markets, we're going to look in those markets. I mean, I think right now there are other than Vancouver, I know of 3 markets that we're spending some energy on and all three of those markets, I'm sure that Netflix would be interested in expanding in.
On the immediate desire, Vancouver is definitely one of them. It's not going to deter us from being in those markets whether they want to do it or not. There is some interesting changes in some of the current markets here in the United States such as Atlanta and the impact of Atlanta like we had projected and it's moving now to LA, it's moving to Vancouver, it's going to move to Toronto, to New York. So you're seeing that impact and that's only going to benefit us.
Got it. Thanks. And then if we think about Bentall for another second and both the capital commitment and the work that you have to do there to reposition that, Can we just think about how much time that will take? Is that something you're going to do upfront? Are you going to own it for a little while and figure out sort of what's best for the asset in the market?
I'm sorry, did you say are we going to own it for a little while?
No, are you going to own it?
Yes. So listen, the immediate need and we have some detail on it, but the immediate need right now is going to be on the office side because we're doing the lease up and we're doing some repositioning in the lobbies. And so, year 1 spend is about $25,000,000 year 2 looks like roughly around the same and then year 3 is about much smaller, dollars 3,000,000 So that's typical what we're doing. I think in terms of the retail, we don't have a plan in terms of a budgetary plan yet because when we decide to build, we're going to take out a portion of the retail. It's going to go straight down.
So we would not do that work on the retail now and then actually not have that space utilized as we tear it out and build the tower because the tower is going in a portion of it. So I think the team is already in process of what the overall plan is for the retail and the common areas and we'll come
out with a budget on
that probably by the end of the year.
Thanks, Matthew.
Thanks, Manny.
Thank you. Our Our next questions are from the line of Daniel Ismail with Green Street Advisors.
Great, thank you. Just more on the markets, can you frame the rents you gave the rental information you gave at the beginning of the call in terms of net effective rents and then maybe comment on year over year concession growth in those markets?
Yes.
So Daniel, typically every call I sort of give a sort of a state as to where we project rent growth is for the year. So we're halfway through the year. Obviously, we're more of in terms of the call, we're halfway through the year. I can tell you that our rent growth numbers and I'll just go region to region is sort of in the range of LA, we're still looking at a consistent 6% to 8% rent growth for the remainder of this year. San Francisco, it's now we were at 8% plus.
I think that's sort of approaching given the stuff we're doing right now is more like closer to 10%. It will look like a year end projection rent growth of about 10 percent. The Peninsula is we had said it was sort of a 4% to 5%. I think that's pretty consistent. What we're seeing maybe even a little higher, but I'm comfortable with 5% to 6% probably going forward on that basis.
Seattle clearly given the demand there right now it was a 6% to 8%. I think it's closer to an 8% rent growth right now in that marketplace. And Vancouver, being that we haven't pegged it yet, I think we're going to we're sort of looking at a 5% to 7% and we could be light on that given the fact that it's sub-three percent vacancy. In terms of the concessions going forward, I think, listen, on the both levels of concessions, it's a constant in all markets regardless of what's going on, unless you guys tell me otherwise, it's a concept 1 month a year free rent. And so it's just and we really haven't seen any movement on that.
I do think that specific to Los Angeles and San Francisco CBD, we're seeing TIs now, which was closer to the 80, 85 number is pushing up another 5 or 10 guys, you think, closer to 90, 95? And I think the Peninsula has been consistent at the $70, dollars 75 number in TIs maybe pushing to $80, but you haven't seen that number move much. I don't think the TI has moved at all in Seattle. And I don't think that we've really put a benchmark on TIs in Vancouver, but they're substantially less than that. They're more like the new TIs are like $60, $65 a foot.
So that sort of gives you a range. Obviously, Daniel, it's known that the space that we're talking about here is either new space or what we de facto call new space, which is 10 plus years old. So there's a tremendous amount of money that we're putting in. But the tenants are also driving that factor because they're putting for the most part, our large tenants are putting in equal or greater than what we're putting in the space. So, that's the enhancement of where that's going to go going forward.
Appreciate it. That's helpful. Maybe switching to the non same store portfolio. Can you give maybe an update in terms of how that's progressing relative to your expectations at beginning of the year and maybe expectations for cash NOI growth for 2019 from the non same store office portfolio?
Yes. I think in the Q1, we had provided some commentary around growth expectations surrounding the non same store and I'm not kind of staring at our prepared remarks from February, but I can tell you that my recollection is we were forecasting somewhere in the mid-thirty percent year over year non same store growth. And I can tell you as we sit today that we are tracking consistent with that level somewhere in the mid, maybe even high ish 30% year over year cash non same store growth.
Got it. And then maybe just a quick last one for me. We noticed the expense growth on the office side declines a little bit. Was that a temporary phenomenon or a permanent expense savings?
Yes. No, there were some expense savings across the board. I wouldn't call it temporary. I think it will level off at a lower it won't be quite as much as you're noticing in say the same store year over year decline. Some of it will hold through the balance of the year though, perhaps not all of it though.
Got it. Thanks, Hans.
Okay. Thank you. This concludes our question and answer session. I'd like to turn the floor back over to Victor Coleman for closing comments.
Thank you so much for the participation and we look forward to speaking to you all next quarter. Have a good rest of your summer.
This concludes today's teleconference. You may disconnect your lines at this time and thank you for your participation.