The Bay Area’s achievements

Credit for the following information goes to Eric Von Berg of Newmark Realty Capital, Inc., “The 7.5 million people in the Greater Bay Area represent 19.6% of the State’s population and 2.4% of the Nation’s.” The Bay Area’s GDP of 616 billion ranks 21st in the world if we were our own country. “The Bay Area per capita productivity is 2.5 times the U.S. average. The Bay Area has more Fortune 500 companies (30 with combined sales of $1.14 trillion) than any U.S. region except New York. Of the 134 high-tech start-ups worldwide that gained a $1 billion valuation in the last 10 years, 52 were from the Bay Area. To read the full report, 2014 Bay Area Economic Engine, click here.

Real Estate in East Bay

San Francisco office tenant activity in the East Bay – not yet! I did an informal survey of top brokers representing Class A office buildings and, for the most part, there has not been a recent spike in San Francisco office tenant inquiries into relocating to Oakland, Walnut Creek or Concord. It may be coming in the future… but not yet. Our Oakland brokers are seeing smaller Class B SF non-profits poking around, and some Class A semi-serious inquiries, but nothing to warrant the beginning of an incoming tide.

Awash in housing, Dublin looks to build office space to lure companies

This article is written by Cory Weinberg, Reporter at San Francisco Business Times.

Lori Taylor, head of economic development for Dublin, drives past one of the city’s two BART stations, pointing out the housing development Avalon Station, which is under construction and soon to deliver 505 units.

Taylor explains that the city is awash with development— but mostly only one kind.

“And this is housing. This is housing, too,” Taylor says, pointing to other sites. “But then there are these other parcels zoned for other things. That’s where I’m spending a lot of my energy. How do we get other things besides housing?”

Those other things are more offices and industrial spaces. Developers have yet to touch three sites near that BART station, zoned for 2 million square feet of office space and owned by the Alameda County Surplus Land Authority. The city hasn’t had new office construction in six years. It’s gotten 3.6 million square feet of new office space in the last two decades — far less than what the city planned for in a 1994 zoning plan.

Housing, meanwhile, has shot past the city’s goals, with nearly 10,000 new housing units built since 1994. The city of about 52,000 people — where the median household income is $112,679 — is the third-fastest-growing city in the state, “but the other two cities were faster because they had prisons,” Taylor pointed out. She said the city expects to have 70,000 residents within a couple decades.

In Taylor’s first year on the job, she’s already seen that residents are fed up with more housing development. Last month, residents approved by a 4-to-1 margin Measure T– a referendum that bars the city from developing on the 1,650-acre Doolan Canyon, which sits between Dublin and Livermore.

“To have a healthy economy, you need to have diversity. You don’t want to put your eggs in one basket,” she said. “Retail is great but they’re not the only kind of jobs we want in our community.”

The Tri-Valley area has struggled to lure more companies away from the Peninsula or San Francisco, although Gap, PG&E, Bank of the West and Clorox have moved some workers there in recent years.

The area – which includes San Ramon, Livermore, Dublin and Pleasanton – had a 15 percent vacancy rate last quarter, according to Colliers International. The area has 5 percent more vacant Class A space now than it did in 2005. That slip comes as cities in the Peninsula and Silicon Valley gain steam.

Jeff Weil, executive vice president at Colliers, said fewer technology companies are looking to put back offices in the East Bay now, instead shipping workers overseas or to other states.

“Silicon Valley, Peninsula and San Francisco workers feel like they need a passport (to the East Bay). It’s like going to a different country,” he said. “The tech folks have Google buses in the Peninsula. I haven’t seen many Google buses in the Tri-Valley.”

At $31.20 per square foot, the city’s average Class A office rents are slightly below the area’s average overall. Dublin’s vacancy was 17 percent, though it recently got a big catch when Ross Stores Inc. relocated its headquarters there this year. The software company CallidusCloud also signed a 75,000-square-foot lease in the city this year and will move soon.

Dublin also has to compete against two major office complexes – Bishop Ranch in San Ramon and Hacienda Office Park in Pleasanton. A place like Bishop Ranch is better suited to provide the stability that companies are looking for, said Alexander Mehran Jr., president and chief operating officer of Sunset Development, which owns the office complex. (That development is still trying to lease the 1 million square feet it refurbished for tech tenants though.)

“It is tough to attract companies to Dublin,” Mehran said. “There are so many different owners with different goals in Dublin and Pleasanton. Many buildings are owned by investors who don’t operate real estate. Most are looking for short-term gains.”

To get investors interested in building new office or industrial buildings in Dublin, Taylor says she needs to show that the city is ready for more workers. It has plenty of selling points, like BART stations on the east and west sides of the narrow city, a spot next to both Interstates 580 and 680. Taylor – who has worked in economic development in cities such as Fremont, San Leandro, Union City and Hayward – said Dublin also has a business-friendly reputation.

Plus, there’s a “fabulous labor pool” that is attracted to the city’s solid schools, Weil said.

But while it has plenty of retailers (and a Whole Foods opening next year), the city lacks a distinct downtown like some of its neighbors or successful San Mateo County cities such as Redwood City. Taylor says that’s because the city wasn’t built around a railway station, like Livermore and Pleasanton are. That fact could also drive potential employers away.

Weil said an office boom could trickle into the Tri-Valley once young techies — who now live in San Francisco — grow up and become their companies’ decision-makers.

“They’ll fall in love and want to settle down. Do they want to spend $2 million on starter homes in San Francisco or go to the suburbs where public schools are wonderful?” he said “They’ll move to the East Bay and then are in a position to decide where the companies go, so the companies will follow.”

“But it may take awhile,” he added.

Cory covers real estate and economic development.

East Bay corporate downsizing continues

East Bay corporate downsizing continues. We are still awaiting the fallout from Safeway Stores. HQ is downsizing in Pleasanton and Wells Fargo has been rumored to be shedding 250,000 square feet of Walnut Creek/Concord office space. Now Chevron has officially announced that they will be shutting down their 576,000 square foot Concord facility on Diamond Blvd, adjacent to I-680, which at one time housed 1,475 employees. On the good news side, General Electric has a software group in San Ramon that has grown from 100,000 sf to 400,000 sf, and Workday in Pleasanton has continued its explosive growth. (Contra Costa Times, December 5, 2014)

CORPORATE OFFICE PERSPECTIVES | DECEMBER 1, 2014

This issue marks my 34½ year of writing and publishing Corporate Office Perspectives and thank you for taking the time to read it! Your comments are always welcome at jeff.weil@colliers.com.

The world economy continues to hum. The U.S. stock market has hit all-time records, while the world’s third biggest economy, Japan, just slipped into a recession. Interest rates are still unbelievably low, and who would have believed gas prices actually going down as far as they have? Yet the office market in most regions is still experiencing a slow recovery.

San Francisco is only 10 miles away from Oakland’s more quiet and serene Downtown, but it could be an entirely different country. Yes, we are seeing signs of Class B small tenant activity in Oakland, but with rental rates half or less the price of San Francisco, where there is an 8% Class A vacancy rate. I was recently working an office transaction in the Oakland Airport area, with more than 80 vacancies and full-service office rents in the $1.00 to 1.40/rsf per month range, it is yet another world away. Even along the I-680 Corridor (Walnut Creek, Concord) and the Tri-Valley Region (San Ramon, Dublin, Pleasanton) where office vacancy rates are 16% expansions and relocations are more of a novelty than a business norm – beneath the radar, corporate giants are still downsizing by hundreds of thousands of feet, sending jobs quietly to Texas or India or the Philippines.

North American Office market rankings report just out. Houston leads the way with a 14.3% 2014 vs. 2013 rent growth, followed by San Francisco (13.2%), Greenville, S.C. (11.9%), San Jose (11.7%) and Nashville (10.7%). For suburban office rent growth, Oakland was in first place at 18.4%, followed by Pleasanton/ Tri-Valley at 11.5%, then Montreal (10.7%) and Vancouver at 10%. For the entire report go to Q3 2014 office market rankings.

I’ve been giving a number of speeches (please call me if you would like me to speak to your organization) and there may come a day when some of the tech companies in San Francisco have leadership, who in their 30’s or 40’s decide to settle down, raise a family and then compare San Francisco dense urban lifestyle vs. the East Bay suburban family, children friendly, culture, move to Lafayette or Danville, or Piedmont, and then relocate a portion or all of their company out to the “burbs”… until then it may be a long, slow road to recovery for the suburbs.

What is exceptional and cutting-edge today will be common-place in the not too distant future … Union Local IBEW-NECA retrofitted a 30-year old, 46,000-square-foot office building in San Leandro, California, and it is now Net Zero Energy Center.

“Green technology is here to stay,” said Victor Uno, business manager of IBEW, local 595 (The Voice Quarter 3 2014). (For a tour or more information, contact Byron Benton bbenton@595jatc.org.

Law360 – law firms across the country continue to downsize, reduce costs by moving parts of administrative costs to less-costly regions, slowly trend towards one-size offices, interior offices vs. window offices, shrinking file rooms, using office hoteling to assign offices on an as-needed basis, and still be able to competitively recruit and retain talent (Law360 October 24, 2014).

We all know that natural light is a better environment for most employees, and a study by Northwestern University demonstrated that occupants of a workspace containing windows that provide natural light were more productive at work, more physically active and had a higher quality of life than those who worked in spaces with no access to natural light (Buildings August 13, 2014). My thoughts: the caliber of the individual putting up with a windowless work environment (call center, back office, mailroom) might play a part in “quality of life” as well.

There are 200,000 housing units in the San Francisco Bay Area either currently under construction or in the development pipeline, and some folks are asking, “Is this enough?” We aren’t building new roads, not much new mass transit and I haven’t heard of huge parking lot construction, so maybe, “Is this too much?” At an average of two persons per house or apartment, this is about 40% of the population the entire states of North and South Dakota, Maine, Vermont, Alaska, Wyoming, or Delaware …(SF Business Times September 2014).

According to Gensler’s 2013 U.S. Workplace Survey, office workers are spending 13% more time on deep concentration work than they did in 2008, 54% of their work hours compared to 48% five years ago (The Registry July 2013).

Google purchased almost 1 million square feet of Class A office buildings at Redwood Shores, and the project has entitlements to allow significant additional office building construction. It is also accessible by ferry which could be an alternative commute transport system. Hmmm, with Google pioneering driverless cars, could driverless ferry boats be that far behind? …(SF Business Times October 3, 2014).

Telecommuting is here to stay and will remain an integral part of the way we work for years to come, but in my opinion it may have peaked. The big tech companies like Google, Salesforce and Facebook have taken down huge office campuses, and see the human interaction and synergy value far outweigh the convenience of working from home in your pajamas.

Deals and Rumors: San Francisco continues to sizzle, with Uber leasing 77,000 sf at 685 Market St.; Yelp expanding to 102,000 sf at 55 Hawthorne St.; Pinterest taking 100,000 sf at 651 Brannan St.; ThredUp inking 16,000 sf at 114 Sansome St.; NerdWallet grabbing 46,000 sf at 901 Market St.; SF Business Times leasing 10,000 sf at 275 Battery; Hassard Bonnington taking 17,000 sf, also at 275 Battery; Next 15 Communications signing for 47,000 sf at 100 Montgomery St.; Aspirant committing for 14,000 sf at 50 California; T Y Lin International leasing 30,000 sf at 345 California St.; Gunderson Law Firm leased 17,000 sf at 1 Bush St.; Wellington Management took 11,000 sf at 2 Embarcadero; Leerink Partners leased 13,000 sf at 255 California St.; First Republic Bank took 57,000 sf at 1 Front St.; New York Life inked 19,000 sf at 425 Market St.; Bigcommerce leased 19,000 sf at 685 Market St.; and Deutsche Bank took 51,000 sf at 101 California. In Oakland, over at the Sears Building on Broadway, Lyft, Stripe and Pinterest rumored to be looking at mega office deals. In Alameda, Sila Nanotechnologies leased 31,000 sf at Mariner Square. In Concord, I helped COSMED USA with its 13,000 sf renewal at 1850 Bates Ave., Wells Fargo is rumored to be downsizing from the 300,000 sf it has on Concord Ave to possibly leasing 150,000 sf at Swift Plaza Concord Bart project; TRC Companies leased 10,000 sf at 2300 Clayton Rd., and in Walnut Creek, Yupana leased 11,000 sf at 201 N. Civic. In San Ramon, California Transplant Donor Network is rumored to be working on a 37,000 sf relocation, Astex Pharmaceuticals might be relocating to 40,000 sf on Rosewood in Pleasanton. Over on the Peninsula, Box leased 334,000 sf at 900 Middlefield Rd. in Redwood City; and Ring Central took 84,000 sf at 20 Davis Dr. in Belmont.

News headlines from The Registry online news: “$900 million in office trades in San Francisco last week”… my comment: this should be a property tax windfall to the City of San Francisco which has seen a population increase of 75 to 100,000 new residents during the past 10 years and next to New York City has the highest population density in the country: 17,500 residents per square mile. San Francisco has only 49 square miles, and Muni and BART are reportedly maxed out due to the thousands (tens of thousands?) of new tech workers … another headline “Columbia Property Trust Deal on 650 California Earns 3.6 Cap Rate”, “Rockefeller Earns Nearly 30 percent Profit on Sale of 50 Beale in San Francisco”.

San Francisco tech companies design office space to attract and retain talent, foster creativity and appeal to clients. Visa leased 113,000 sf with SF Bay views, lots of nearby restaurants, public transit and hotels. Its offices have glass conference rooms, open offices, bench seating as well as workstations. Other companies have community-driven interiors such as open kitchens and abundant informal meeting areas (The Registry October 8, 2014).

Not everywhere, but in suburban regions with high demand for new multi-family apartment construction we are seeing garden office buildings being purchased by apartment developers who will keep the leases short-term during the entitlement process and then demolish the buildings to make way for new apartment construction.

Google has been on an office space acquisition rampage during recent years, and with all its building teasing and purchases, currently has enough capacity to accommodate 30,000 more Bay Area employees (San Jose Mercury News November 9, 2014).

John Rahaim, director of planning for San Francisco, said during the past four years San Francisco added 50,000 new jobs and expects to add about 10,000 people per year in the next two to three years. Projections indicate that by 2040, San Francisco’s population will grow by 200,000 people, need 100,000 more housing units and 200,000 more jobs (The Registry October 8, 2014).

Gensler’s 2013 U.S. Workplace Survey found that employers inadvertently undermine themselves by emphasizing collaborative space over “focus” space… yet tech workers still want and need quiet and collaborative space, sometimes at the same time, sometimes not. As an example of balance, the tech company Tagged occupies 40,000 square feet on two floors, has both open seating areas as well as 35 meeting rooms, a one-to-five worker ratio (The Registry July 2013).

I am usually less optimistic than others about how vibrant and dynamic the East Bay office market is, especially if I am in a room filled with landlord agents. In a number of subregions rents are rising, i.e. Downtown Walnut Creek Class A, but the current vacancy rate at 13.4% is still double-digits. It’s even worse when comparing to San Francisco or the Peninsula, which are on fire, but the East Bay is tepid at best. The Wall Street Journal agrees with me in its article “Bay Area’s Office Boom Stalls in the East. Oakland, Others See Little Evidence of an Uptick” (The Wall Street Journal October 21, 2014).

Transparent solar energy…Solar luminescent concentrators that are as transparent as glass is under development at Michigan State University – just wait, it won’t be long before your office building roof, windows and even exterior panels will all be solar collectors generating electricity (Buildings August 22, 2014).

Jordan, who is a senior in high school, was just honored with the Boy Scout rank of Eagle Scout, spending 12 years throughout his Scouting career, earning 43 merit badges and joining the 4% of Boy Scouts who are able to achieve this highest rank! He is actively submerged in college applications, and enjoying high school to the maximum – he and his friends cheer at all the various school sporting events, from football to volleyball to water polo. He is getting ready as a co-captain of his varsity lacrosse team for the final season (no, he is not going to a Back East lacrosse college). Those of you who have raised a teenage boy know how much food they can put away, and I get sad thinking next year there will be one less month to feed at my home. His younger sister, Madison, had a fabulous soccer season, with almost everyone on her team scoring goals and ending the season as the top team. She is now taking the “stick” and getting ready for girls’ lacrosse. Their recent photos can be seen here.

I am writing this newsletter at a medical clinic, awaiting a dear friend who is having tests run. Two of my favorite comedians, who I listen to all the time on Pandora, are Robin Williams and Joan Rivers … In todays’ morning news a terrorist wearing a school uniform and a backpack blew up 48 school children in Nigeria. Back East they are buried under 4 feet of snow, but in California it is in the 70s with much-needed rain and snow nowhere to be found. My friends who help out at the local Food Bank say demand, unfortunately, is as strong as ever, while tech workers in San Francisco are paid six-figure starting salaries and treated to free gourmet lunches and dinners.

Amidst all this chaos, how can we touch others to help make their lives better? In this approaching holiday season of giving, with so many charities asking and needing assistance, what can we do, within our means and abilities, to give back to this great community that in our time of need I know will be there for us? Have a wonderful December and New Year with all those you cherish!

Sincerely,
Jeffrey Weil, MCR.h,SIOR,CCIM
Executive Vice President
Colliers International