CORPORATE OFFICE PERSPECTIVES | JUNE 1, 2014

Designing perks into tech space … two key reasons many tech companies offer employee perks – the first is to gain or keep a competitive hiring edge against the competition – if everyone is offering tech employees six-figure salaries, the free meals prepared on-site by the in-house gourmet chef, or free dry cleaning, or the fully stocked refrigerators with complimentary snacks and soda, or a free fitness center, or floor bike storage, lockers and showers or the game room with big screens for video games, foosball, pool and ping pong tables might just make the difference. The second reason is if you can bring your dog to work, you don’t have to race home at 5 p.m., and if there is a free gourmet dinner, you can stay and work late, which tech companies love … (San Francisco Chronicle 3.23.14)

Corporate “rightsizing” … Many employees today don’t come to work and sit at their desks all day – they are mobile, work in different areas of the office or out of the office, are unfettered to a desk computer and function on tablets or laptops. As a result on lease renewal, many companies are redesigning spaces and discovering the same if not more employee headcount can be accommodated, but in 50 or 70% less space. “Companies are really struggling with renew in place versus going to a new site to implement these workplace strategies,” says Colliers International Principal Bob Chodos in Chicago. Renewing tenants may need enhanced landlord tenant improvement packages to accommodate these changes, and are signing longer lease terms (5 to 7 years vs. 3 to 5 years), and savvy landlords understand that, while in the past they could get away with minimum tenant improvements on renewal, today this might not necessarily be the case. (National Real Estate Investor, February 2014)

Big city versus suburban office design differences: Big-city high-tech is leading the way in major office space design, with the elimination of most private offices and even getting rid of cubicle/workstations. Some suburban tech is following suit. Other non-tech industries sectors such as law firms, CPA’s and other professional services are in part transitioning in major cities, but at least in the San Francisco East Bay suburbs it is still “old school” for the most part. I interviewed a number of prominent office design architects and here are their thoughts… major suburban firms are evaluating more open space and assessing corporate culture. Firms have moved middle management out of private offices into workstations as a compromise. Companies are reducing private office count and increasing pow-wow spaces, breakout rooms, and even adding “fun” spaces with ping-pong and foosball. National law firms are mandating standard layout criteria and suburban branch offices, with partners’ offices shrinking from 220 to 240 sf down to 150 to 180 sf. Reports of major suburban firms experimenting by taking a division and implementing open-space design, then after interviewing and finding opposition, the next phase goes less dramatic in actual change design. For the most part, though, other than national firms, it is still old school private offices and workstations for now. As more suburban national firms reduce or eliminate private offices and create significant cost efficiencies, this may pressure local firms to follow suit in order to stay cost-competitive.

Land for $933 per sf in San Francisco? Alexandria just purchased a 1.23 acre development site at 500 Townsend St. for $50 million bucks … which is expected to accommodate a 300,000 square foot office building.

There are a number of reasons why landlords renovate office building common areas. One reason is to maintain a modern image and keep up with color and style changes. Another might be due to the necessity to stay up with current life-safety, ADA or fire department codes and regulations. A third reason is that oftentimes the management company earns significant fees in supervising the common area work entailed, which in most cases is passed back onto the tenants as part of the operating cost escalations. So, if you are the tenant with all this common area renovation going on, enjoy it because like it or not, you are probably paying for it. Of course, there are also the special landlords who absorb this cost and don’t pass it on to tenants.

The new office building design is “live/work/play lifestyle’,” with new office developments incorporating large gyms (including basketball and virtual golf), conference centers, art galleries, and instead of traditional formal lobbies, informal meeting spaces, park spaces, rooftop gardens, retail and restaurants within the office complex, according to designers of major office projects in New York City, Houston and Calgary, Alberta. (National Real Estate Investor, February 2014)

Deals and Rumors: San Francisco continues to set new records, with Salesforce.com leasing 716,000 sf at Transbay Terminal, LinkedIn inking a 450,000 sf lease on Second St.; Box taking 400,000 sf at 100 First St.; Microsoft leasing 49,000 sf at 555 California Blvd.; Trulia taking 79,000 sf at 535 Mission St.; Dropbox leasing 118,000 sf at 345 Brannan St.; 180,000 sf at 333 Brannan St. and 11,000 sf at 185 Berry St.; Twitter expanding to 313,000 sf at 1 Tenth St.; Practice Fusion leasing 101,000 sf at 650 Townsend St., Morgan Stanley & Co. expanding to 41,000 sf at 555 California St. and UC Berkeley Extension took 47,000 sf at 160 Spear St. I helped Individual Software relocate to 13,000 sf at 2301 Armstrong Drive in Livermore. In Pleasanton, PACSGear took 11,000 sf at 4309 Hacienda Drive and Workday is planning to build 430,000 sf for expansion at the Pleasanton Bart station. In Walnut Creek, Del Monte leased 27,000 sf at 3003 Oak Rd., and in Concord, Old Republic signed for 11,000 sf at 1855 Gateway Blvd. In San Leandro OSIsoft will be taking 100,000 sf at The Crossings next to the San Leandro Bart station. In Oakland, SfunCube leased 15,000 sf at 426 17th St., Eyes Lips Face (e.l.f.) leased 10,000 sf for its West Coast offices at 570 10th St.; Gordon & Rees is taking 24,000 sf at 1111 Broadway; Saybrook University leased 14,000 sf at 475 14th St.; and GreatSchools took 14,000 sf at 1999 Harrison St. UCSF expanded to 116,000 sf in Emeryville at 2000 Powell St. and in Fremont, Ronbow leased 36,000 sf for its’ headquarters at 40650 Encyclopedia Circle.

Heard a major architect explain why with some office tech densities reaching 100 square feet per employee there may not be an electrical capacity issue – many IT departments have moved to the cloud, and PC’s and big screens have been replaced by energy-efficient laptops, flat-screens and tablets.

In the National Real Estate Investor (March/April 2014), there is a chart showing the office net absorption and vacancy for the past two years … eight straight quarters of positive absorption, but the vacancy rate nationwide is still stuck at almost 17%. Maybe things have changed, but when I got my MBA at Cal way back when, a vacancy rate of more than 10% was not necessarily a good thing …

Changing law firm trends … In the past, each law partner may have had his or her own administrative person. Now one admin might support four to five partners. In the past, the partner’s private office may have had a high degree of finish work, expensive paneling and furniture, whereas, now the focus is on multiple-sized meeting and conference rooms near the reception area. Law firms on average are reducing office footprints by 15% when relocating. “Demands for more efficiency, collaboration, attracting Millennial talent and implementing new technology are just some of the issues that companies are dealing with. For continued success in the future, law firms will need to evolve, acknowledge these trends and behave more like a contemporary business.” (Haworth Workplace Trends Influencing Law Firms 10/13)

The San Francisco office market continues to be on fire. Last month, Salesforce.com leased 716,000 sf, LinkedIn — 450,000 sf and Box — 400,000 sf, further diminishing the next two year’s supply of available office space. With rental rates in the $60 to 80 per sf range (fully serviced annual), the East Bay is a relative steal with Class A fully serviced rent in the $24 to 40 sf range, but few tech companies (or for that matter, few companies period) want to sacrifice the most valuable asset, their workforce, and thus transbay relocations remain far and few between.

Working in your office on a treadmill increases productivity by nearly 10 percent. The study conducted by the Carlson School of Management followed 40 employees of a local financial services company for a year. (How do you “follow” someone on a treadmill?) The treadmills and other equipment, such as wireless headsets, are to encourage movement. There are even four treadmills in the conference room to encourage “walking meetings’.” I guess that puts a new twist on “walk the talk”….

I went back to my 1983 newsletters, when Concord office space was going for $1.75 per sf and today is $1.75 to 2.00 per sf per month, Walnut Creek Shadelands rents in the $1.39 to 1.75 per sf range versus today, 30 years later, $1.60 to 2.00 per sf – not much difference, although operating expenses have more than doubled, and no adjustment for inflation! Back in 1983, when I set up my first IBM computer, Transbay office relocations from San Francisco were brisk, and that was the year I represented AT&T in more than 700,000 sf of office leases in Pleasanton. Oh, those were the days!

By the time you read this in early June, both Madison’s softball and Jordan’s lacrosse seasons will be winding down. With summer just around the corner, Madison is graduating from elementary school and is looking forward to Stone Valley Middle School this fall. Jordan becomes a senior at Monte Vista High School. Madison has a number of very exciting summer camps to look forward to as her Dad keeps working and is ready for your business call – she will be going rock climbing, rafting, amusement parks, and many other activities that I would happily trade places with her. Jordan will be working and getting ready for college applications. Click Here to view Jordan and Madison’s recent photos.

Was life harder or easier for us 20 or 30 or 40 years ago? Cars today warn you well before they break down (most of the time) while cars 40 years ago without smart computer chips, just broke down and stranded you. We didn’t have voice mail, just human receptionists taking messages, and researching companies or industries could take days or weeks before we had the Internet. My first computer used floppy disks to load each program, everything took forever (but it was faster than before computers) and crashes were a normal function of PC life. My first car phone had equipment the size of a small suitcase, mounted in the trunk, each call cost a dollar a minute, but the convenience sure beat the pay phone. Those of us old enough to remember the IBM Selectronics, white-out, and the amazing invention of white tape built into the typewriter. Now most have never seen a typewriter. Dial-up modems? And yet, the overall stress level today feels higher because we are on information overload. How can we get instant answers to just about any question, and still feel overwhelmed and overloaded?

Hopefully, not the quiet before the storm, but for the most part our country isn’t engaged in any major wars, we don’t have a gas crisis, there are no SARS epidemics, manufacturing at least in part has returned to U.S. shores, the banking and housing industries are not on the brink of collapse, most corporations appear to be profitable, and while we still haven’t solved our national or world health, hunger, educational and myriad of other long-term problems, we are making serious dents on many fronts. All in all, not a bad time to be an American and, in spite of its pitfalls, I will take our form of democracy over anyone else’s, any day! Call me, please, for any of your commercial real estate needs, send me a note if you agree or disagree with anything I wrote (jeff.weil@colliers.com) and enjoy this Spring!

Sincerely,

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

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