CORPORATE OFFICE PERSPECTIVES | OCTOBER 1, 2014

Why do office tenants relocate? They may need more space and their existing landlord is unable to accommodate them; they may need to downsize at the end of their lease term and their space is not easily divisible; they might want to be in the newest fancy office building with more bells and whistles; or they may have a significant rent reduction opportunity through relocating. Perhaps their way of doing business may have changed and sometimes it is more efficient to move into custom-designed space vs. endure in-place reconstruction which can be quite disruptive. A new president or CFO might want to change the company image through relocation, or other factors such as public transit, restaurant and retail amenities, or client proximity might also have an impact.

In talking with my fellow office leasing specialists around the country, other than with a handful of corporations located in areas such as Houston, San Francisco, Santa Clara and the oil fracking regions, for the most part, there is almost no new office construction today. Firms are “hunkered down” and not expanding, CFOs are not jumping ship with the velocity they did prior to 2007 and 70 percent of all office tenants renew leases as a result versus relocation. This is usually a WIN-WIN for both landlord and tenant, and particularly if the tenant is represented by a tenant rep specialist, as the $30-50/rsf (or more) cost savings (or once there is a vacancy) can be shared between landlord and tenant on the renewal. When the tenant doesn’t have its own representative, it is usually a WIN (landlord)-win (tenant) as usually the landlord pockets the lion’s share of the savings. Am I biased? You bet!

In an article titled “The Traditional office will soon be extinct,” a study from Aruba Networks surveyed 1,000 IT professionals worldwide to get a better idea of what the workplace will look like in the future. “The term ‘office’ will become obsolete in the coming years as we completely redefine where and how work gets done.” The younger employees, “GenMobile” want to work anywhere, wireless and always connected …(PCWorld June 17 2014)

Living walls and tables – there is a company, Habitat Horticulture, which makes living walls of plants for office environments, with low-maintenance greenery that becomes an integral part of the office environment. Living tables will be coming out in the next six months – not sure how this will work, but you can get more info at www.habitathorticulture.com

San Francisco Here We Come … or maybe not … heard on the news today that new micro apartments of 300 square feet (total) renting in San Francisco for $1,900/month and median condo prices are $900,000, with median home prices at $1.1 million …

Advanced HVAC controls, more commonly used for air handling units, when used on packaged HVAC units can cut energy use by more than half. (Buildings July 2014)

Parking lot info you probably didn’t know … Building owners spend more than $6 billion annually just to light parking lots and garages – a recent energy efficiency project cut energy use by 90% during the past year by targeting lighting retrofits across 270 million square feet of parking spaces. The metal halide, fluorescent and LED retrofits will last up to three times longer and lighting control systems enable participants to reduce energy consumption when parking facilities are not in use. (Buildings July 2014)

A brand-new 2014 North American office report, “Frozenomics Thaw Unfreezes Office Market in Q2,” just out with lots of details and stats across the U.S. office market. Office-using jobs lost in the recession are fully recovered in half of tracked metro areas. For the full report, please click here.

Google’s new Washington D.C. office digs feature several dining areas with free food, a video game room, treadmills with computers and space-age capsules for those afternoon power naps. They have an on-site diner built to look like an old rail car … yes, the food is Googlelicious! (Contra Costa Times July 16 2014)

The new virtual cubicle walls are quality headphones, with rows of employees sitting side by side in front of flat screens and keyboards at long work tables. And when employees are focused at work, headphones are not just virtual walls, but also the door, and, when on the head, the door is closed … (Yahoo Tech May 14 2014)

The tallest tower of the new World Trade Center, with 3.1 million square feet, at 1,776 feet tall, has a cost of $3.9 billion and the most expensive office tower ever built. (RealtyToday May 27 2014)

Miscellaneous commercial real estate factoids: The East Bay I-680 retail vacancy rate is now down to 4%; single-tenant NNN leased investment cap rates are 5 to 6 ½%; commercial loan rates still low, i.e., light industrial multi-tenant 25 year amortization 10 year fixed at 3.9 %; East Bay apartment rents went up 5% during the last quarter alone.

Recent SF Business Times headline, “Texas has to buy jobs while California creates wealth.” Toyota, Charles Schwab and others may be moving jobs from California to Texas, but I bet they aren’t moving many people … We are named “The Golden State” for a reason, and having spent last weekend in Mendocino and the weekend prior at Lake Tahoe, I expect few people will actually be relocating …(SF Business Times July 9 2014)

Demountable walls for 2014 tax benefits, possible categorization as furniture for faster write-off, flexibility, “green” factor as less waste vs. hard walls, “cool” factor as slick new (i.e. all glass) demountable systems. To minimize sound and maximize privacy, specify STC 40 rating, make sure installation is airtight, block unducted air openings in ceiling with “boots”. For more details, visit todaysfacilitymanager.com, May 2014.

San Francisco Bay Area multi-family construction is at a 20-year high, with more than 17,500 units now under construction. Oakland apartment rents increased 19% during the past year which ranked number one in all 50 U.S. markets.

The Green Garage Certification recognizes sustainable parking facility design, technology, operations and management, and is the industry-equivalent to LEED certification. For more details, please go to www.greenparkingcouncil.org

Deals and Rumors: In Oakland, Gensler leased 14,000 sf at 2101 Webster St. and Workers Compensation and Parsons Brinkerhoff combined took 51,000 sf at 1221 Broadway. The California State Bar Association is looking around for 100,000 sf and Gymboree might be rumored to be out for 160,000 sf. Over in Berkeley, Avid took 10,000 sf at 2600 10th St. Allergy & Asthma Medical Group will be relocating to 13,000 sf at 370 N. Wiget Lane in Walnut Creek. In Concord, Saxco leased 24,000 sf at 1855 Gateway Blvd. In Pleasanton, GAP is rumored to be looking at buying 300 to 400,000 sf of the Rosewood office complex that Swift recently purchased. In San Francisco, The Lending Club leased 14,000 sf at 221 Main St.; WTAS expanded to 48,000 sf at 100 First St.; Prosper Marketplace leased 48,000 sf at 221 Main St.; Uber, which my friends love and most or all never again call a cab company, will be building a 423,000 sf headquarters building in Mission Bay, on top of their current 200,000 sf at 455 Market St.; Next15 might be looking at 50,000 sf at 100 Montgomery St.; Mixpanel is rumored to be at for 50,000 sf, ServiceSource might be downsizing, Uber might be subleasing 75,000 sf of the Macy’s space, and Dodge & Cox expanding to 110,000 sf at 555 California St.

Wow, Green Buildings Do Not Make For Happier Workers … according to a recent research project of UC Berkeley and University of Nottingham, analyzing 21,477 survey responses in 144 office buildings, the LEED certified occupants were happiest during the first year a worker spends in a green building, then satisfaction leveled out, matching non-LEED buildings. Click here
for the whole article.

Boomers retire, but Millennials shrinking … Every day for the next 15 years 10,000 Baby Boomers reach age 65 … and an article titled “War for Talent Driving Office Leasing Decisions” expresses CEO concern that the influx of new workers is shrinking. During the past decade, 2 million people aged 18 to 64 have entered the U.S. workforce annually, with declines to 750,000 annually today, and by 2020, to 250,000 annually. Good thing the Robot generation is on its way! (National Real Estate Investor June 17 2014)

Online ticketing service, Eventbrite, went from start-up to grown-up, but kept its office space design vibrancy. The outer ring of the office floor features floor-to-ceiling glass, and serves as the main work area. The inside ring is a series of different types of meeting areas, with conference tables, lounge chairs, standing-height tables with tall stools – most have one wall open – the innermost ring is a group of smaller, quieter offices for one to four people, with floor lamps, wall sconces and even an occasional hammock.
(The Registry August 20 2014)

I recently wrote a blog regarding several company announcements of relocations out of California to Texas (Charles Schwab, Toyota, AT &T), and today I see more proof that we have something very special here in Northern California. Wal-Mart, which goes to great lengths to cut its expenses to the bone so it can offer merchandise at the lowest possible prices, could have expanded e-commerce operations in Idaho, India, or yes, even Texas, but chose instead to lease an additional 127,000 square feet of office space in Sunnyvale, and I’m sure they will also be paying top dollar for new employees – but hey, you get what you pay for and the high-energy creative braintrust going on in Silicon Valley and San Francisco is over the top … (SF Registry August 11 2014)

GO – Biz (Governor’s Office of Business & Economic Development) provides tax exemptions, hiring tax credits and California completes tax credit to keep California jobs from leaving. For additional information, go to www.business.ca.gov.

This month on October 11, my birthday, I begin my 39th year leasing and selling commercial real estate. Way back in 1976 when I received my MBA from UC Berkeley, I had job offers from major corporations. One wanted to ship me off to Chicago to a corporate HQ. Another, a retail chain told me I would be a store manager within two years as long as I put in my 80 hours a week, but I chose Grubb & Ellis and have never looked back. In my next life, I might want to be a firefighter or CFO of a major corporation, but this life has not been too bad. Great co-workers at Colliers, clients who for the most part are loyal and astute (i.e. listen to advice), a beautiful region to work, play and raise kids. Now if we can just get East Bay office job creation into a higher gear ….

Madison, who turned 12 on August 23, just started middle school and loves her classes and school. She does not love the homework, but I guess I would be concerned if she did. Visiting her teachers and hearing what they are learning almost gets me thinking of a “do-over.” My junior high was fun, but no way as stimulating as today’s kids have it. Jordan, 17, just finished his Boy Scout Eagle project, collecting more than 1,400 pairs of shoes which will go overseas to those less fortunate. He has started the college application process and is really enjoying his senior year of high school. He worked full-time during the summer in residential construction, learning how to repair rental houses and apartments for a real estate investor. Their recent photos can be seen here.

My friends who worked in government jobs are for the most part retiring after 30-35 years, while most of my private sector friends continue their lawyering, doctoring, and CPAing into their 50s, 60s, and yes, even into their 70s. Those more financially fortunate take off for two- or three-week European or Asian vacations, while others with kids in college hunker down to make sure tuitions are paid. My father, Arthur, is in his third career, having spent the first 18 years teaching middle school German and American history, the next 20 years selling residential real estate, and the past 20 years writing and publishing poetry books. His latest book, “A Mental Meal,” at 382 pages, is a collection of his best poetry and can be ordered at www.amazon.com (just put in “Arthur Weil Poet”). I am not sure what his fourth career will be, as at 89 he has more energy than most. So working, retired, or in between, the key is to live a very satisfied life. The age-old parable, when you are on your dying bed, looking back over your lifetime and asking yourself what you wished you had done more of, whether it be spending time with family, vacations, religious involvement, or hobbies, then now is the time to make this a more important priority. Easier said than done, I know! Have a great fall, and remember, I am here for you and your company for all your commercial real estate needs!

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

Eventbrite’s office space design vibrancy

Online ticketing service Eventbrite went from start-up to grown-up, but kept its office space design vibrancy- the outer ring of the office floor features floor-to-ceiling glass, and services as the main work area. The inside ring is a series of different types of meeting areas, with conference tables, lounge chairs, standing-height tables with tall stools- most have one wall open – the innermost ring is a group of smaller, quieter offices for one to four people, with floor lamps, wall sconces and even an occasional hammock. (SF Registry, 8/22/14)

Boomers retire, but Millennials shrinking

Boomers retire, but Millennials shrinking… Every day for the next 15 years 10,000 Baby Boomers reach age 65… and an article titled ‘War for Talent Driving Office Leasing Decisions’ expresses CEO concern that the influx of new workers is shrinking, from 2 million people aged 18 to 64 entering the US workforce on an annual basis for the past decade, to 750,000 annually today, and by 2020, to 250,000 annually. Good thing the Robot generation is on its way! (National Real Estate Investor – Jun 17, 2014)