CORPORATE OFFICE PERSPECTIVES | OCTOBER 1, 2013

October 11th marks the day I first started in commercial real estate… before smart phones, iPads, mp3 and internet…

Wow, issue #200 of the Officetimes.com newsletter, started back in 1980 to share office industry thoughts, trends and predictions with clients and those interested in the office space industry. It started out with a few hundred sent with hand written notes by snail mail (no email back then!) and now goes out to tens of thousands every other month. Thank you so much for reading this.. What would be icing on the cake (my birthday is October 11th) would be a commercial real estate business lead!

The office market, which several years ago hit rock bottom, has been slowly but steadily getting back on its feet. There are a few regions where office rent increases now justify new construction, ie San Francisco where almost 3 million square feet of office space development is underway at $60/sf annual full-service rents. In many regions across the US rents are still 30-50 % below what is required to justify new office construction. However, such as the case in Downtown Walnut Creek where several buildings are now quote – $3.50/rsf ($42 per annum) rental rates. If it only takes another $1.50/rsf in rental increase to make new construction pencil and it takes two to three years of lead time to acquire land, obtain city approvals, and construct a new building, that we may see new office development in a number of US sub-regions in the 2016/2017 time-frame.

Real estate tech startups based in San Francisco that hope to change the way the traditional paper intensive industry works:

  • Closing Time, an online tool that manages the home buyer process after a buyer goes into contract.
  • 12 Floors, an online search engine for the office rental market that connects tenants with future deals and interior designers.
  • Recesio, for residential agents to manage their transactions.
  • Homelight, which matches homebuyers with agents.
  • Primary, which is a market for investors to buy and sell equity in single-family homes.
  • Realty Shares, offering ecrowd funding for investment properties.
  • Lovely, an apartment search tool with a smartphone app that allows tenants and landlords to share more information.
  • Happy Inspector, which offers software for home inspectors replacing traditional pen and paper-based reports.
  • Rentlytics, software for portfolio apartment investors allows them to analyze data in real time.
  • Zumper, an apartment search tool.

Many times what starts out as a tool or app for residential real estate ends up as a commercial real estate app down the road…

“Law firms make up seventeen percent of all office space in the United States and typically take the newest and best space in large markets.” However, according to a recent article in National Real Estate Investor June/July 2013, law firms will remain cost conscious and occupy less space than in previous years. On average, law firms are predicted to take 25 percent less space through minimized law libraries now obsolete due to internet accessibility, downsized partners offices, and smaller workspaces for non-partners.

Card-Key access using your smart phone as your digital credential.. but it takes more than just an app.. your phone must be enabled with NFC (Near Field Communication) which uses two-way radio communication of four inches or less. The credential and app can then be downloaded and stored on your phone SIM card or secured phone element. You can also tie this in with cafeteria and vending machine purchases, and access charges can be made remotely by office personnel. Buildings June 2013

In a recent Wired magazine article, a number of tech workers based in the South of Market business district (Wired itsself has its headquarters there) and is celebrating its 20th anniversary. “The typical work-space is open, with simple drawer-less desks in a row or small clusters. Most offices have a few giant rubber-ball seats, some standing desks, the occasional treadmill. There is also a stark absence of paper, often there is not a sheet: no books, no paper on the walls, no binders or pads. The long-prophesied, paperless office has arrived. Only toys, beverage containers, keyboards and headphones sit on the desk… during the workday, the headphones provide a virtual cubical to block distractions.”

Deals and Rumors:
These are just a very partial list of all the office leases and activity in San Francisco:

  • Akami Technologies, Inc. leased 29,000 sf at 799 Market St.
  • Yahoo is taking 60,000 sf at the San Francisco Chronicle Building
  • AppDynamics took 42,000 sf at 303 Second St.
  • Neustar may be leasing 144,000 sf at 505 Howard St.
  • eBay is taking 140,000 sf at 199 Fremont St.
  • Cisco expanded to 67,000 sf at 500 Terry Francois Blvd.
  • Weebly lease 36,000 sf at 460 Bryant St.
  • Software AG leased 25,000 sf at 140 New Montgomery St.
  • Western Union expanded 15,000 sf at 185 Berry St.
  • Scotia Bank is taking 96,000 sf at 250 Vesey St.
  • James Mintz leased 16,000 sf at 10 Fifth Ave.
  • Canada Pension Plan Investment Board leased 11,500 sf at 510 Madison Ave.

Over in Emeryville:

  • TubeMogul, leased 35,000 sf at 1250 53rd St.

Next door in Oakland:

  • Premier Business leased 21,000 at 1999 Harrison St.

In Walnut Creek:

  • YapeStone is rumored to be out looking for 35,000 sf.
  • RMC has recently leased 11,000 sf at 2175 N. California Blvd.
  • Aetna downsized from 60,000 sf to 30,000 sf and will be relocated to 2850 Shadelands Dr.

In Pleasanton:

  • Safeway is reportedly out for 60-80,000 sf.
  • Google just leased 500,000 sf at 100 Mayfield Ave in Mountain View.

Commercial property owners/users seeking 90% SBA financing can still find relatively low rates (as compared to the past 15 years) but interest rates are up a full percentage point, with current 20-year money now at 5.69%

According to Commercial Investment Real-Estate Magazine May 2013, companies try to accurately estimate how many square feet per worker is needed, but often times end up with 25 percent or more excess space. Thus, a targeted goal of 200 square feet per employee might result in actuality of 250 square feet per employee. “Yet, in the last year’s CoreNet Global survey, corporate executives indicated they expect to reduce the amount of space they lease in the next five years to less than 100 square feet of dedicated space per worker.”

San Francisco condo prices for projects that will be done next year, at least for one development that is now doing pre-sales, run from $1,025- $1,180 per square foot. $480,000 will buy you a 450 square foot studio. Compare that to the burbs where you might be able to get a four or five bedroom house with some land… and in many parts in the country with that kind of change you can buy two or three houses and still have enough money left over for your mountain retreat.

Three generations of workers, side by side, as baby boomers now in their 60’s and 70’s delay retirement, and share the same workforce with “kids” young enough to be their grandchildren… Generational training programs help bridge the understanding gap between those who grew up on fax machines, and 8-tracks, and the new mobile generation texting and downloading work apps to keep up with the curve. What does this mean for office space design?

The new One World Trade Center in New York will have elevators that reach the speed of 2000 feet a minute with a total of 70 elevators. The office floor sizes range from 46,000 square feet on the 20th floor to 35,000 square feet on the 80th floor. Special security features include biological and chemical filters in the air supply system, multiple backup lighting systems, ultra-wide stairs that use fans to prevent smoke from filling in the stairwells and dedicated stairs for the fire fighters.

The United States has averaged 150 million sq ft of new office building construction per year. There is an estimated 12.25 billion sq ft of office space in the United States today. Recent studies suggest that Corporate America downsized their work space at lease expiration to approximately 125 sq ft per employee, which will free up over 540 million sq ft of office space.

“There’s definitely a trend towards a more efficient use of space among office users thanks to the advancement of digital file storage, Wi-Fi, and the like.” According to CoStar, there are a number of factors involved in this, including length of lease, corporate standards, existing furniture and budgets for smaller, more efficient work environment. Also the major factor that in this era of business growth is being driven by smaller businesses. The large corporations are still hunkered down while companies under 25,000 square feet (and in our suburban market, 5,000 square feet) are the driving force in office space absorption. This has caused the “100 square foot” employee space usage to still be a thing of the future.

newsletter200Madison, my 11 year old daughter is back in school and just started her new soccer season. She had so many terrific experiences at Girl Scout and other camps during the summer but she and her 16 year-old brother Jordan’s best time was the week we spent Toronto, Canada with their 15 cousins ages 12 to 19 (just right in their sweet spot for teens) and five Uncles and Aunts. Humongous roller coasters at Canada’s Wonderland, seeing Pandas at the Toronto Zoo, pee wee golf and the Canada Exhibition, Blue Jays beating the Red Sox in 10 innings, and just seeing relatives they haven’t seen in years.

After one of the best summers ever, not just personally since we weren’t bombing some foreign country, we didn’t have a gas or water shortage, the stock market went up, not down, yes we had floods, and forest fires in parts of the Country but all in all most economic and other indicators arrows pointed upwards. The trend is expected to continue for at least the foreseeable future. Even though my team is busy representing tenants and selling buildings we have plenty of bandwidth for your business so please give me a call for any and all of your real estate needs. Check out www.officetimes.com which is totally being revamped and also www.officetimes.com/blog.

October 11th marks the day I first started in commercial real estate… before smart phones, iPads, mp3 and internet… but one thing hasn’t changed, and that is trust, ethics, experience and relationships… Thanks so much for sharing this life’s journey with me!

Jeff Weil

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