CORPORATE OFFICE PERSPECTIVES | APRIL 1, 2019
The San Francisco and San Jose office markets last year accounted for more than 22 million square feet of office leasing, which when compared to the East Bay are many times what we have experienced in Oakland, Walnut Creek, and the Tri-Valley regions. San Francisco rents now average $92/rsf, while up and down the I-680 corridor rental rates average $36/rsf. San Francisco is basically out of office space so major users are pre-leasing entire office buildings two to three years before they are even built, while in the suburbs, we currently have more than 5.5 million feet of vacant office space. So far, minimal transbay movement or companies coming out of San Jose or the Peninsula.
I gave a recent speech to a room full of CPAs, attorneys, and brokers and predicted that in the San Francisco Bay Area during the next few years, between 125,000 to 150,000 high-paying tech jobs will be created. Facebook taking down 4.5 million square feet of office space, Square signing 330,000 sf in Oakland, the Google San Jose campus which might provide space for 50,000 new Googleites, Alibara just leased 166,000 sf, LinkedIn is signing for 410,000 sf in Sunnyvale, and more … (The Registry, February 1, 2019)
Office building operating costs are up in a number of categories. Out in the suburbs five-day a week janitorial for a typical office tenant used to be .07/per month including supplies but now costs are $.10-.12 per month. Utilities for years was pegged at $.22/rsf per month and now might be $.25/rsf. Class A San Francisco operating expenses on an annual basis may be in the $20 to 25/rsf range and operating expenses in the burbs $10 to 17/rsf.
Since 2009, the Bay Area has grown by 100 million square feet of new office space! 70% of this was in Silicon Valley, 10% on the Peninsula, 15% in San Francisco, and 5% in the Oakland / East Bay. At a five person per 1,000 square foot ratio this equates to 500,000 new tech jobs! This was in a CBRE 2019 Bay Area Tech book report. (The Registry, January 23, 2019).
Flashback to my June 1, 1983 newsletter. Approximately, 1,300 acres of research and development office and industrial land was for sale in Livermore/Pleasanton at $1.75 to $7.00/sq.ft. In the following newsletter I leased AT&T 700,000 sf of office space in Pleasanton and sold 100,000 sf in two office buildings for Computerlands new headquarters in Oakland, Oh, those were the days!
In a RegistrySF article, ’Untethered Connections,’ “according to Humanyze, open plans are great at encouraging interactions between teams, which is useful when a company is trying to create new products. But they are terrible at encouraging interaction within teams, which is necessary for execution-based work, like writing code, when employees need to be in sync. An open office might be suitable for a company coming up with new ideas, but when someone has to implement them, it becomes distracting.”
San Francisco Bay Area tenant improvement costs have skyrocketed in recent years, and for new buildings in the City I have heard of $80 to 150/sf TI costs to build out new tenant space. In the suburbs it is not uncommon for second-generation (we have no new construction, so this is previously occupied space) tenant improvements to come in at $30-50/sf or more and if it is a union job $50-80/rsf. I just received a quote from a major TI contractor for paint, carpet, and the cost of moving furniture after hours for a lease renewal: $12 to 14/sf! A few years ago this would have been $8 to 10/sf.
San Francisco will have a total of 2.6 million square feet of office space expected to be completed 2019 and 2020, but 2.3 million square feet of this has already been leased. There are far more tenants seeking office space in San Francisco than there is available space.
In an article published in the Winter 2018 SIOR magazine titled, “Is the Suburban Market Dying”, various discussions of downtown CBDs in many regions capturing the bulk of leasing with tenants want the urban vitality, “a growing preference among younger workers for life in more dynamic urban centers than in sometimes staid and sleepy suburbs.” But like many of us in the boonies keep hoping for “ … many of the millennials will eventually want to own or rent detached houses with backyards for their kids” and move their companies out to suburbs as well …
Deals and Rumors. Google leased 190,000 sf at 600 Clyde in Mountain View, Snowflake Computing took 210,000 sf at 450 Concar Drive in San Mateo, Allogene leased 118,000 sf at 7300 Gateway Blvd. in Newark, Credit Karma is rumored to be leasing 137,000 sf at 1100 Broadway in Oakland, Foster Farms is leasing 19,000 sf at Bishop Ranch in San Ramon. In San Francisco, Asana took 266,000 sf at 633 Folsom St. and WeWork leased 55,000 sf at 755 Sansome St. as well as 102,000 sf at 1 Post St.; Minted took 38,000 sf at 747 Front St.; NASDAQ sublet 20,000 sf at 505 Howard St.; Zenefits took 28,000 sf at 50 Beale St.; Juul Labs expanded into 20,000 sf at 99 Rhode Island St.; The Athletic Media Company is subleasing 12,000 sf at 525 Market St.; Limebike sublet 17,000 sf at 1 Samsome St; Omniscience Corp took 20,000 at 100 Montgomery St.; Redfin may be leasing 49,000 sf at 333 Bush St.; Samsara Networks signed for 23,000 sf at 251 Rhode Island; Iterable leased 35,000 sf at 71 Stevenson St; and Cooley Law firm leased 128,000 sf at Three Embarcadero Center.
Our multifamily division felt that apartment house cap rates will go up in 2019, values will come down a bit, but sellers might be locked into 2017/2018 pricing expectations, resulting in a gap between seller pricing and buyers looking for a discount.
How much impact on the total U.S. commercial real estate market is still too soon to say, but recent reports show consistent and significant movement out of the U.S. by Chinese capital investors. Three quarters in a row and 2.68 billion dollars net selling by Chinese investors with no end to this trend in sight. (Bisnow, January 29, 2019)
As 3D printing becomes more affordable and popular be aware that there are some desktop units that generate unhealthy ultrafine particles while in operation which have the potential to be inhaled deep into the human pulmonary system to your body’s detriment. 3D printers are used for much longer periods of time than laser printers. Check for printers certified as having low emissions. Please check UL Chemical Safety and Georgia Tech for more info.
Coworking office space currently only accounts for about 1 percent of the current office inventory but experts predict this percentage will go up to 5 to 10 percent. Regus has 3,000 locations worldwide while WeWork has 286 locations.
Jordan, my 21 year old son, is graduating this year from Cal Poly with an Industrial Technology degree at their College of Business and has also been putting in long hours at an industrial drone company making high end drones for corporate use. Madison, a sophomore at San Ramon Valley High, is learning to drive which with all the recent rainstorms has been a most careful and safe process. She taught herself to play the ukulele and guitar and has a wonderful voice. We took her to Lake Tahoe a few weeks ago and during Spring break had a blast at Playa del Carmen with my fiancée, Launa. Our wedding plans for this coming June are coming along with so many details still to take care of.
These days perhaps a few residential home sale mailers end up at the home mailbox, compared to what’s coming down the road with the 2020 elections which will fill our mailboxes. Sometimes it’s the small things to be grateful for! My 93-year-old father, Arthur, who taught middle school for 20 years, then sold homes for 20 years followed by a 30-year career writing poetry books (22 in all) is now moving to a beautiful senior citizen complex with views of Lake Merritt and San Francisco this month. He sold off his coin collection, 15 boxes of his stamp collection, and his 1,350-bottle wine collection will be auctioned off by experts. Last year at age 92 Arthur lectured more than 3,000 high school kids on the Holocaust, and amazingly he is still a safe driver but now prefers to Uber to his many theater and concert performances. Call me anytime while we head into Spring! A toast to family and health!
Sincerely,
Jeffrey
S. Weil, MCR.h,
CCIM, SIOR
Executive Vice President
CA License No. 00786195
925 279 5590
