CORPORATE OFFICE PERSPECTIVES | June 1, 2018
Unemployment levels are at the lowest they have been since 2000. Office space more than ever is being used by corporations to attract and retain employees. What type of layout, materials, amenities will cause a prospective employee to want to work there, and what bells and whistles within and outside of the office environment will help keep employees onboard and not jumping ship? Flexibility within the workplace means different types of work environments, from solo pods or workstations for heads-down work, collaboration rooms or couches in nooks, privacy areas and lunchrooms that support collaboration. Foosball, beer on Fridays, free snacks (and many tech companies provide free meals of all types). Outdoor areas have been fitted with bocce ball courts, fire pits, and different types of informal meeting areas. Locating in an urban area surrounded by hip restaurants and retail amenities is another huge plus, and as an example, San Francisco firms pay double or triple the rent to be in the City, versus out in the much-lower rent districts like Concord or San Ramon. It used to be that office density metrics was the key, but now saving the high cost of employee turnover goes directly to the bottom line. In addition, happier employees are far more productive.
I have heard so many stories about how companies should expand or relocate outside of the San Francisco Bay Area due to our high cost of living, and some do this … However, Yelp CEO Jeremy Stoppelman told a recent group at a housing panel discussion at its San Francisco headquarters he’s found the best tech talent continues to want to work in San Francisco! He added, “We are load-balancing across our different offices. It’s really about where are you going to learn the most, where are you going to join the most innovative companies, where are you going to have the most exciting peer groups, where are you going to be able to touch the newest technologies first. It’s all still happening around here.” (SF Business Times, April 19, 2018)
Commercial real estate sales strategy – there is usually a lag time factor between impending interest rate increases and the impact on investment property cap rates (net operating income divided by the price), and rising cap rates usually translates into decreasing property values. Experts say now may be a great time to sell as prices are frothy, but lower values may be just over the horizon.
A recent trend taking place in many parts of the United States, but especially in the San Francisco Bay Area is now happening in the East Bay. During the last few years in the Tri-Valley region of Dublin and Pleasanton, office owners have been putting in bocce ball courts, fire pits and Wi-Fi-enabled outside seating areas to allow office employees the opportunity to work and play outdoors at office buildings. I recently toured a major Walnut Creek office project which just completed an extensive tenant amenity upgrade. I was blown away by the scope and quality of improvements. A 6,000-square-foot conference center with small private offices, couch seating areas, a state-of-the-art kitchen with a beer kegerator and snacks available to tenants at no charge. Corner informal nook meeting areas, a diversity of seating and collaboration arrangements, a large classroom with flexible desks that convert to various conference table configurations. Outside there is a central bocce ball court, chairs of different types in large quantities, and semi-private meeting “rooms” walled on three sides. All is free to the 375,000-square- foot office project’s tenants. Please click here to see pictures.
Why have so many Class A and B Bay Area office buildings changed hands just in the past three years? In two words: profit-taking. As just one example (out of hundreds of sales), the 312,000-square-foot Class A two-building office project, The Plaza, at 2000-2010 Crow Canyon Place in San Ramon was purchased in April 2016 for $47.6 million, a bargain at $152 a square foot, and was just sold for $72.2 million, or $231 a square foot, a very nice $24.6 million dollar profit in just two years. (The Registry, March 31, 2018)
Systems that contribute most to zero energy buildings:
- The Building Envelope. It’s used to ensure there are proper air seals, double windows, and continuous insulation.
- Heat Pump. Due to significant innovations during the past 10 years, modern technology may have a huge impact on energy efficiency.
- Plug Loads understand how individuals are using power, switch to LEDs.
- Solar PV is usually the best way to produce power at a facility, along with on-site wind generation. (Buildings, October 2017)
Just as employees value their work experience when making the decision to stay with the same firm or move on to “a better work experience,” with some similarities, but obviously with vast differences, companies may determine whether to remain in the same office space based in part on their “experience”. Part of this office facility experience might include how the property management promptly resolves issues, how the building is maintained and how the tenant and property manager / landlord communicate with each other. Increasingly there are software solutions that ease and facilitate these types of communications. “Connected tenants want to be able to use their phone to discover and claim amenities exclusive to their building or their neighborhood. Connected tenants want to be able to use their phone to find, RSVP, and partake in office experiences, such as yoga classes, happy hours, or free coffee in the lobby. Connected tenants want to be able to navigate their commute from their phone, including public transportation alerts, shuttle access, parking garage and building entry integration. Connected tenants expect to be able to register visitors from their phone, and they expect to be able to book common areas or conference rooms from their phone. Connected tenants are so used to communicating via text message or Slack, and they expect a similar experience within their office community. At a bare minimum, they expect to be able to receive notifications, alerts and messages about their office from property and asset managers on their phone.” (Propmodo.com)
Deals and Rumors: Facebook is looking at another 1 million sf expansion in Sunnyvale and is expanding its headquarters by 464,000 sf in Menlo Park. The company is also reportedly looking, along with Google and Amazon, at 250,000 to 750,000 square feet at Park Tower at 250 Howard St. (but just reported Facebook may lease the entire 750,000 square feet!) in San Francisco. In the City, Google just expanded by 57,000 sf at 2 Harrison, and WeWork is rumored to be taking 90,000 sf at 353 Sacramento St. as well as possibly 100,000 to 200,000 sf at One Post St. Over in Milpitas, SF Motors leased 136,000 sf of R&D space at Building B in McCarthy Creekside. Up in Concord, Wells Fargo may have leased 50,000 sf next to the Concord BART station. Down in San Ramon, Sephora is rumored to be looking at 80,000 sf and in Pleasanton, Teleflex leased 76,000 sf at Brittania Business Park.
The future of the office – it might be all in your head, with the increasing viability of virtual reality hardware and software. Put your smart glasses on, and your virtual office opens up, photos of your kids are on your virtual desk, your files are ready to be opened, you can pull up your e-mails, order on Amazon during a quick break, collaborate with others around the world in virtual meeting rooms, with auto translating for those from non-English speaking countries. When it’s a time for a “real” break, take off your glasses and head to the company lunchroom for non-virtual interaction … (Wired, February 15, 2018)
Office tenant improvement contractors are experiencing significantly longer lead times for materials such as doors, glass and other building components that need to be manufactured. For example, instead of a five-day lead time, two weeks might be necessary. Along with this delay factor, many cities are utilizing outside plan checkers that may make more comments than the in-house city staff person. It leads to requiring one or more revised plans which can add a week or two, or more, to the delay in obtaining a building permit. Bottom line – plan for 2 to 4 months extra time in the office leasing or remodel process.
Our retail experts report that most of the soon-to-be vacant Toys “R” Us locations are already being snapped up for conversion into grocery and other retail … one retail market segment that in many regions is still being challenged is the smaller soft-goods stores in strip shopping centers, which are being replaced by financial services, karate, dog-training and other less traditional retail-type uses.
An increasing trend in office space build-out is to spend a lot of tenant improvement dollars to give the space a “Wow!” factor. Spending a few extra bucks on the office environment might be dollars well spent in an effort to increase retention of existing employees and to enhance new hiring. Millennials especially want to come to a fun place to work, with tricked-out lunchrooms, collaborative areas, and employee-enticing amenities. With low unemployment and competition for new hires, spending a few extra bucks on the office environment might be dollars well spent.
In some regions there may be a recent change to building codes which can now require “hard” ducting vs. spiral ducting. Apparently the hard ducting has to be fabricated and custom-made versus the far more flexible and versatile spiral ducting. Also, this new code change could add $5 to 10/sf to the job cost for office space renovations.
LED lighting is now tunable and there are technologies available to allow facilities managers to adjust lighting style throughout the day. “On top of all the energy efficiency benefits LED lighting provides, the ability to control color temperatures and have a direct impact on a work environment is exciting for facility managers. However, the exact potential of tunable lighting is only partially understood.” (Buildings, April 3, 2018)
Anthony Herrmann, director of treasury and finance with C3i Solutions, on their corporate consolidation (same headcount, but 50% reduction in square feet), of three office facilities, said, “Three insights drove us to a more efficient footprint: standardize the support representatives’ work spaces; adopt a work remotely philosophy, where applicable; and rationalize the use of fixed office spaces.” (Facility Executive, February 20, 2018)
“Studies show that open (or “hybrid”) offices typically promote creativity and productivity, improve the bottom-line, enhance the organization’s culture and brand and facilitate top talent recruitment and retention.” However, we now have five generations working together, and Baby Boomers may find it difficult to adjust to this new open office environment, new technology, and sometimes lack of privacy. In the past, project managers made sure the office space was designed, built out on time and on budget, took care of furniture, cabling and move-in. The new role is Contemporary Project Manager (CPM) who does a whole lot more in understanding and communicating the different generational needs as well as different personalities requiring a wider-range of work environments. (The Registry, April 4, 2018)
Google has spent more than $200 million dollars purchasing development sites in downtown San Jose, after investing in excess of $1 billion dollars in Sunnyvale buying buildings and empty lots. The San Jose properties are near BART, ACE Train, Caltrain, Amtrak and light rail connections, and the properties span a distance of more than a mile. As of now, there are no plans to change the name of San Jose to San Google … (Bay Area News Group, March 30, 2018)
Tighter corporate security after YouTube shootings … recommendations all the way from more cameras (Big Brother is watching you!), and active shooter training to TSA-style door screenings. Eyeball and finger scans? Or, is going too far counter-productive to a synergistic, creative collaborative work environment? (Bay Area News Group, April 5, 2018)
According to an article titled “Cracking the co-working code in commercial real estate” by Herbert Lash, “Data shows over one-quarter of new leases signed in the past two years came from this burgeoning (co-working and other flexible workspace options) business.” “Landlords have been forced to focus on how to maximize space …” “… it’s about the density, the additional bathroom, the column-free spacing, which all is a way of saying we can put more people on the floor than you can.” (Reuters, March 18, 2018)
This 138th issue of OfficeTimes marks the beginning of my 38th year writing and publishing this newsletter. Your comments are always welcome at jeff.weil@colliers.com and please keep calling me for all your commercial real estate needs!
I just wrote an article that may be of interest to attorneys, CPAs, financial planners and just about anyone involved in the hiring and managing of Millennials in the workplace titled “The Increasing Impact of Millennials in and on Law Firms.” Please click here to access this article.
Jordan, who turns 21 in May, is finishing his Junior year at Cal Poly in San Luis Obispo. He has been president of AEPi the past year and, with the recent turmoil on campus, looks forward to a much quieter Senior year as past president! When your kid is away at college, there isn’t a lot to write about, and I am so grateful that past December, Jordan and I went skiing at Squaw Valley-Alpine Meadows and then the following week went scuba diving in Costa Rica. Madison, almost 16, had a great Freshman year at San Ramon Valley High School, and is looking forward to working this summer in Danville. My father, Arthur, who turns 93 this September, guest-lectures at two to four high schools a month on the Holocaust and World War II, and is writing his 23rd poetry book (Google Arthur Weil Poet to see more about this). He is a season subscriber to the opera, symphony, numerous theater groups and amazes even me with his continued energy. I rarely mention my own life, but I recently became engaged to a beautiful, smart, and tri-lingual school teacher, Launa Parnas, and we will be married next summer!
Unemployment is at 18-year low, long-term interest rates are still ridiculously low (I remember commercial rates of 11% back in the 1990s and residential rates of 16% in the 1980s!). As I write this, the U.S is mostly not at war (I have a 20-year old son and still remember my draft number during the Vietnam War), and while the stock market gyrates 200 points at a time, overall, world poverty levels are at a record low, although most are feeling financially ok. Get the BBQ grill and environmentally friendly sunblock ready and let’s have a terrific summer!
Sincerely,
Jeffrey Weil, MCR.h,SIOR, CCIM
Executive Vice President
CA License No. 00786195
925 279 5590
jeff.weil@colliers.com
www.officetimes.com
