CORPORATE OFFICE PERSPECTIVES | FEBRUARY 1, 2018
A few weeks ago I presented a forecast of where our commercial real estate market is headed in 2018 and beyond at an event hosted by RINA Accountancy and Chicago Deferred Exchange Company. In summary, San Francisco has been off the charts, with 9.5 million square feet of gross office absorption, 2.2 million feet coming to market this quarter, 95% of which is preleased, and only one 750,000 square foot project is still available. San Francisco rents are in the $75 to 95 per annum range. Oakland has a number of announced new office tower projects in the works, and with a 4% vacancy and rents hitting $60 a square foot, they need more available office space. The I-680 and Tri-Valley regions paint a slightly different picture, with an 11.5 % overall vacancy and more than 5 million feet of vacant office space at $25 to 55/rsf rates. To see my complete presentation, please go to my website www.officetimes.com or click here.
Even though San Francisco office rents may seem high to some, at $70 to 90/rsf per annum, it is a bargain in comparison to the rest of the world. According to CBRE, New York is the most expensive U.S. location at $153/rsf in Midtown Manhattan, but Hong Kong tops them all at $269/rsf! (Site Selection, November 2017)
“The new FASB lease accounting rules are driving changes in lease abstraction. While technologies like artificial intelligence (AI) and machine learning can accelerate lease abstraction, they aren’t perfect substitutes for doing this manually. International real estate leases are often stored in database systems that don’t talk to each other. It is common for leases in large real estate portfolios to be inconsistently abstracted. Leases may need to be re-abstracted, since FASB requires additional information that isn’t usually captured.” (Site Selection, November 2017)
Gen Z, those born between 1995 and 2012, are beginning to have a major impact on commercial real estate, is 70 million strong and by 2020 will represent 40% of U.S. consumers. Employees prefer space that is customizable and technologically oriented. “This generation prioritizes proximity to mixed uses, clustered amenities between and within workplaces.” This age group wants a say in workplace design, “co-mingled private/public spaces and smaller customizable work pods mixed within a larger office setting.” (The Registry, November 21, 2017)
I recently heard a report on the radio that the Bay Area bridge commute traffic was up 19% at 3 a.m. and 4 a.m. as workers try to get a jump on rush hour, which appears to be in full swing by 5 a.m. …
Cities and counties have had a huge windfall with property taxes being generated from record sales prices of both residential and commercial properties. In several Bay Area sub-regions during the past five years, 80% of all Class A office buildings have traded hands, with the new sales price setting a much higher property tax benchmark. This windfall will not last, mark my words! At the same time, most cities and counties are underwater with regard to their employee pension plans. Are they using these windfall dollars to pay down the upside-down pension obligations? Probably not …
Home Depot will be taking 50 of its stores and installing 1,000 solar panels on each roof, which is expected to reduce electricity by 30 to 35%, and six of these will use Tesla Power packs to store and dispatch additional power. (Buildings, October 1, 2017)
Factoids about Colliers International (my company) you probably didn’t know … 396 offices in 68 countries on six continents, $2.6 billion in annual revenue, 2 billion square feet under management, and 15,000 agents, brokers and staff.
Deals and Rumors: In Fremont, Facebook leased 190,000 sf at 6350 Paseo Padre Parkway and 6422 Commerce Drive. In Oakland, Clovis Oncology took 32,000 sf at 1330 Broadway. In Concord, Prowess Inc. leased 56,000 sf at 5129 Commercial Circle. In Walnut Creek, Keller Williams Realty leased 10,000 sf at 201 N. Civic Drive; Black & Veatch took 11,000 sf at 2999 Oak Road; UBS Financial Services Inc. signed for 24,000 sf at 1255 Treat Blvd; and I represented COSMED USA Inc. in an expansion to 17,000 sf at 1850 Bates Ave. Down in San Ramon, ARC Document Solution relocated from Walnut Creek to 23,000 sf at Bishop Ranch 15 and I assisted in the expansion of Insight Global to 20,000 sf at 2430 Camino Ramon. Down in Pleasanton, 10x Genomics, Inc. is rumored to be looking for 70,000 to 80,000 sf and Anixter downsized to 15,000 sf at 5000 Franklin. In Rohnert Park, Keysight Technologies signed for 104,000 sf at SOMO Village. In Mountain View, WeWork sublet 456,000 sf from LinkedIn at the Village at San Antonio Center. Up in San Mateo, Guidewire Software leased 189,000 sf at 2850 S. Delaware St. Up in South San Francisco, Corbion leased 32,000 sf at Genesis South Tower. Ok, now hot hot San Francisco … Snap Inc. leased 33,000 sf at 875 Howard St.; Niantic, Inc. took 17,000 sf at the Ferry Building; Airbnb leased 82,000 sf at 650 7th St.; Hellman & Friedman is rumored to be taking 50,000 sf at Salesforce Tower, where Covington & Burling Law Firm leased 79,000 sf. Symantec signed for 40,000 sf at 100 California St.; Periscope Data inked 43,000 sf at 1125 Mission St.; Stride Health took 13,000 sf at 501 Second St.; Calegari & Morris leased 15,000 sf at 650 California St.; Fetch Media took 10,000 sf at 141-153 Kearny St.; Gusto signed for 50,000 sf at Pier 70; Cosmos Labs inked 16,000 sf at 3030 17th St.; Okta took 207,000 sf at 100 First St.; and Canopy Growth leased 11,000 sf at 170 Columbus Ave.
Coworking is the fastest-growing sector in the commercial real estate market, growing to 20 percent in the office market in North America within the next decade … This is not a fad, there are new centers opening every day, and this is a major disrupter in the real estate world … A lot of big companies are looking at this as their real estate strategy. (The Registry, November 17, 2017)
At the 27th Annual Convention and Expo of the Santa Clara County Association of Realtors, the chief economist of the National Association of Realtors stated that during the past five years 350,000 jobs have been created in the San Francisco – Oakland metro area and another 200,000 jobs were created in the San Jose metro area. Home prices may continue to rise, in part because many construction workers have illegal immigrant status and are staying away from work, and many workers have gone to Texas and Florida. (Bay Area News Group, October 19, 2017)
Robots are being used to show residential properties to prospects, but unlike other residential real estate trends that eventually become part of commercial real estate practices, I don’t see robots taking over the retail, industrial or office brokers’ role anytime soon. However, according to Rahul Mewawalla, CEO of Zenplace, “This new way to rent makes for a better rental experience – tenants love the smart guided tours by a robot and owners love how their property can now be rented in days instead of weeks or months.” (The Registry, December 5, 2017)
“If the old paradigm of an office building or a headquarters was processing tasks, like a factory, the new paradigm is unlocking people’s creative potential, like a university. That’s a big shift. It’s not about fixing space to suit efficiencies and desk ratios, but creating flexibility around where and when people do their work, both inside and outside of the building.” (Gensler Dialogue 28)
Four office worker commute options:
- A single passenger stuck in traffic in a long commute;
- The high tech buses that are wired and set up so employees can work on their way to the office;
- Locate like Salesforce and hundreds of other tech firms in Downtown San Francisco at a transportation hub to make commuting relatively easy;
- The fully integrated corporate campuses sprouting up all over the Bay Area, with office, housing, retail and recreational amenities, all in the same “neighborhood”. A short drive to work, or bicycle, play bocce ball or ping pong outside of your office, shop at adjacent stores and almost eliminate time wasted in commuting. (Bay Area News Group, December 27, 2017)
The Building Owners and Managers Association, BOMA, redefined how office space is measured during this past year. As a result, if a tenant has exclusive use of a balcony, the landlord can include the square footage of the balcony the same as interior office space. I’ve had clients experienced a 28% jump in their rent because of this, and just try putting a desk and a chair out on the balcony during a rainstorm …
Jordan, my 20-year-old son who is a Junior at Cal Poly, went skiing with me during the holidays, and we lucked out with great snow and even fresh powder at Alpine and Squaw Valley. Madison, 15 and a high school freshman, Jordan, and I spent an awesome week at Riu Palace in Costa Rica, an all-inclusive super nice resort I would highly recommend. Five swimming pools, six restaurants, great food and over-the-top service made it special. The kids and I went zip-lining, ATV’ing through the jungle with a herd of howler monkeys overhead, and Jordan and I went scuba diving as he just became PADI certified. Treasured moments and memories being with your kids!
Love or hate the president and the current politics, most of us have no problem with the way the economy is going. Everyone I know has a job, as does everyone they know. Sure, the commute sometimes is the pits, and there never seems to be enough time, money, or having a winning lottery ticket, but we, in these United States, for the most part, are totally blessed! Have a safe and wonderful winter, and please call me for any and all of your commercial real estate needs!
Sincerely,
Jeffrey Weil, MCR.h, SIOR, CCIM
Executive Vice President
Colliers International
