CORPORATE OFFICE PERSPECTIVES | JUNE 1, 2019
An avalanche of Bay Area IPO’s creating thousands of new millionaires, some now flush with cash seeking to buy homes, while Californians by the tens of thousands are selling their pricey ranchers and condos and fleeing to lower cost areas like Texas, Utah, Tennessee, and other more affordable places. Even if a million folks left California, we would still be short another million homes due to our 10-year housing crisis. Meanwhile, just a few weeks ago, Google took over another million square feet of Bay Area office space.
In some regions with retailers of all sizes and shapes closing down, office tenants are stepping up to take their place. As one example, the West Side Pavilion in Los Angeles is being transformed into office space for Google. Located near mass transit and major highways, big floor plates and very high ceilings, the 584,000-square-foot complex will be “Googleized” by 2022.
Smart windows being installed in state-of-the-art office buildings allow the window glass to darken as the sun becomes brighter, and tech advancements like this allow developers to ask for premium rents. Less glare, less eyestrain, less heat-load on the HVAC system, and happier tenants!
The tenant improvement “punch list” where tenants move in and there are still outlets not working, millwork not completed and other construction items not finished, may be a thing of the past. Some construction firms now commit to having their projects 100% complete, and may even give a lifetime guarantee on workmanship in addition to guaranteeing 100% finished tenant improvements. I’m sure this is not as simple as it sounds and might cost more, and there are many occasions when tenant change orders are the cause of construction delay.
Office amenities help attract and retain employees and with the job market so tight, employees are willing to pay a premium for these. Amenities that encourage health and wellness are popular and “office tenants are also showing increased interest in services including massage therapy and chiropractors, meditation areas in the office, yoga studios and walking/running trails, rock-climbing walls, expresso and cocktail bars, game rooms and virtual gaming spaces, corporate sports tournaments, and active spaces, and theater and music stages.”
In an article titled, “Site Factors” published in California Real Estate Journal, discussed factors involved in locating an office or plant. “To be sure, core site selection factors have remained essentially the same real estate prices, taxes, incentives, logistics, transportation, labor, and utilities, as well as business climate and quality of life issues at the local level.” The weight given to each factor has changed too, observes Bill Luttrell, Western Region senior manager for Deloitte & Touche Fantus Consulting. “As early as the 1990’s the number one criterion for companies was real estate,” says Luttrell.” “That has changed to labor. So what will it be in the future? Labor will remain on top, but infrastructure or logistics will start coming to the top as well” … This is one key reason the San Francisco area continues to fare so well in retaining a major corporate presence in spite of the relatively high cost of commercial and residential real estate. Labor, infrastructure, access to the huge California market, and other non-real estate factors help keep companies from fleeing en masse to Atlanta or New Mexico. As Bill Luttrell also says in this article, “There were several firms that left California in the early ’90s and went to our neighboring states that are now finding out they made a mistake because of the logistics.” This, believe it or not, was published in Corporate Office Perspectives way back in October 2018!
Deals and Rumors. In San Ramon, WeWork leased 85,000 sf at 3001 Bishop Drive, and in Oakland, Credit Karma took 110,000 sf at 1100 Broadway. At Emery Station West in Emeryville, Novartis signed for 78,000 sf and Gristone Oncology for 35,000 sf. WeWork was busy in San Francisco, signing for 12,000 sf at 166 Geary, 55,000 sf at 755 Sansome St, and 77,000 sf at 50 & 60 San Francisco St. Pinterest leased 490,000 sf at 88 Bluxome St; Samsara took 86,000 sf at One DeHare St., and Google leased 140,000 sf of former Charles Schwab space. In South San Francisco, Fluidgm Corp took 68,000 at Genesis South, and in Foster City Indeed inked for 37,000 sf at Parkside Towers.
In my October 1999 Corporate Office Perspectives, I listed 15 office deals on the I-680 Corridor totaling 784,000 square feet and that was just for a two-month period! What a difference 20 years makes!
The San Francisco Bay Area is just too expensive for employees to afford homes or rent apartments and that is why big tech companies are headed elsewhere. NOT! Google just announced they are buying three office buildings in Mountain View for $250 million totaling, 167,000 square feet, and in addition, leased four buildings in North San Jose totaling 729,000 square feet!
Jordan, who just turned 22 weeks ago is in his senior year at Cal Poly, is on the Dean’s list and working 40 hours a week, in charge of commercial drone manufacturing at Inspired Flight (yes, I am a very proud dad!). I had a real treat during spring break with my fiancée, Launa, along with daughter Madison, in Playa del Carmen. Jordan was in Cozumel scuba diving and we all met up for dinner. Madison who by the time you read this will be a junior at San Ramon Valley High, just started her first “real” summer job at Five Guys Burgers and Fries in Alamo. My 93-year-old father, Arthur, decided to trade in his multi-story Piedmont home for a “safe” elevatored senior housing in Oakland on Lake Merritt. Lots of activities, friendly folks, so he decided to play ping pong, not having played in 20 years, and you guessed it, broke his hip and ended up in the emergency room. Arthur has been in and out of the hospital for the past 30 days and hopefully, by the time you read this, he will be slowly recovering in rehab. We also pulled him off the tennis team so all should be good now!
A few weeks ago I had the great fortune to go spring skiing with my sister Judy and 25-year-old nephew, Josh, and what a delightful day we had! No traffic either way, the snow was surprisingly good at Squaw Valley, no lines, blue skies, and t-shirt weather. The Sierras are incredible, and while I’m at it, so is Sonoma and Napa Valley wine tasting, the ocean views in Mendocino and Monterey, and the cultural festivals are starting their spring and summer seasons. Wherever you live, enjoy what your area has to offer, don’t take it for granted or wait for a less-busy time. Get out and enjoy life now – have a great spring and keep calling me for all your commercial real estate needs!
Sincerely,
Jeffrey S. Weil, MCR.h, CCIM, SIOR
Executive Vice President
CA License No. 00786195
925 279 5590
