August 1, 2004 Issue: 146
Good job news department: Silicon Valley Biz Ink (6/25/04) “In a Manpower survey of 35,000 U.S. employers, 30 percent expect an increase in hiring activity for the quarter, compared to 20 percent for the same quarter in 2003. Also, the survey found that the Western region is poised for the strongest job growth, with 33 percent of employers planning to increase their workforce during the quarter. A similar survey by CareerBuilder found the Western region will experience the second-highest rate of job growth, the South being the highest. CareerBuilder’s survey determined that 47 percent of its respondents plan to increase jobs in the third quarter.”
In The Sunday Times (5/9/04), “Architects are designing a new generation of ‘fit’ offices buildings which encourage employees to become healthier by making them walk while they are at work. The buildings counter the chair-bound culture by putting meeting rooms, canteens and car parks a significant distance away from desks, so workers have to expend energy getting to them.” I’m not sure of this concept. Many of the CFO’s and management I know work out at a gym. If time is money, and efficient business operations are critical to competitiveness, if one building had adjacent employee parking and the second building wanted you to walk two blocks to your car to force you to exercise, I know what many of my clients would say … (they’d tell the second building to take its own hike …).
Business 2.0 (June 2004) published a list of the “Fastest-Growing Technology Companies” in the world, including companies based in France, Canada, Israel and India. Electronics and software makeup close to half the list, 14 biotech companies were included in this top 100 list, and in spite of all the Golden - State bashing one hears, 32, yes 32 of the top 100 are based in California …
Charles Schwab source quote from last week, “The layoffs will be in the thousands.” I won’t list them, but there have been scores of recent “downsizing” and “job reduction” announcements by local Bay Area firms. We are also witnessing the actualization of technology business process efficiency. I was speaking with a local 50,000 sf software user who was excited about the new sales positions he was adding. Will this require any additional office space? No, as the PeopleSoft platform, they finally implemented, allowed the purchasing department to go from 8 employees down to 1, and the accounts payable department from twenty down to 2, due to efficient department integration. So more gets done with less, with a major beneficial bottom-line impact. (Of course, the opposite bottom-line effect for the office landlords … ).
I love business headlines ... On the same day, July 10, 2004, in a big headline the Tri-Valley Herald announces, "East Bay job growth rises," while the San Francisco Chronicle headlined, "Few new jobs in weak recovery." Same glass half full/half empty ...
Firms reduce their office space and raise efficiency when utilizing new organizational ideas: “When PricewaterhouseCoopers moves into its new offices in midtown Manhattan this summer, it will slim down by about 200,000 square feet of space from the 1 million it now occupies. Yet, PricewaterhouseCoopers (I sure hope they don’t do any more mergers, for namesake!) says it is not planning to reduce its New York workforce of 3,500. Partners who now luxuriate in window offices averaging 250 square feet will move to interior spaces half that size … Managers who now have as much as 140 square feet will get 80. To compensate for the tighter quarters, the new layout will include more common spaces, like meeting rooms and ‘teaming areas’ where employees can work together on projects or gather informally to exchange ideas. ChevronTexaco recently said it would add 500 people to its workforce in downtown Houston without adding any floor space, by scrapping traditional wall-and-door offices in favor of an open layout of cubicles. According to Reis Inc., companies in the 61 largest metropolitan areas allocated an average of 227 square feet for each employee in the 1980’s. These days the average is from 150 to 200 square feet.” This article was published in The Sacramento Bee (6/14/04).
Articles on new trends in wireless office technology, battery-less UPS backup systems, work-letter issues, savings on after-hours HVAC costs, and other timely issues will be posted in upcoming weeks at www.officetimes.com. Also, if any of your associates would like a free subscription to www.officetimes.com, now in its 24th year of publication, just sign up on the home page.
Outsourcing snapshots: Hallmark Cards Inc. said Tuesday it has signed a seven-year, $230 million deal to outsource some of its high-tech jobs … From The Boston Business Journal (7/2/04), “Several studies say the United States is on the winning side of outsourcing, gaining more jobs from the process that it loses. A McKinsey study says the money saved from the lowered costs of outsourcing and redeployed labor produces a net gain in the United States” ... “Legislatures in 35 states have draft legislation on the table to address offshoring, often to ban government agencies from contracting with companies planning to employ workers overseas. A total of 161 state laws and more than 50 federal laws restricting or banning offshoring have been proposed”… In China, one of their cities, Dalian, has seen its software industry grow 50 percent annually in the last five years. In less than five years, a square mile of farmland has been transformed into Software Park. Its wide roads, manicured lawns and neat office parks look as though they were airlifted from California. Microsoft has outsourced some product testing to Dalian, and H-P has set up a 600 person call center there … From Wired (July 2004), “Did you hear the one about the programmer who outsourced his own job?” A pseudonymous poster wrote, “About a year ago I hired a developer in India to do my job. I pay him $12,000 to do the job I get paid $67,000 for. He’s happy to have the work. I’m happy that I only have to work 90 minutes a day, talking code. Now I’m considering getting a second job and doing the same thing”… “Big financial firms step up pace of offshoring jobs. Survey finds 400 percent jump in outsourcing, especially to India,” according to a recent survey by Deloitte Research” … "India has more than 2.5 million qualified graduates and 500,000 engineers joining the employment pool every year"…
The California Assembly voted 44 to 26 in favor of a bill to ban state contractors from outsourcing government work to other countries or states" … “In its latest study, Forrester Research predicts that by the end of next year, U.S. firms will offshore more than 800,000 service jobs, 40 percent more than the firm estimated previously.”
Deals and Rumors: Starting over in the “burbs,” in Pleasanton Calypte Biomedical Corp. leased 20,000 sf at 5000 Hopyard Road; Carden West School leased 46,000 sf at 4576 Willow Road; Richmond American Homes is taking 24,000 sf at 5075 Hopyard Road; Fireside Thrift expanded at 5050 Hopyard Road by 18,000 sf ; and Commerce West is relocating to 22,000 sf at 4301 Hacienda. Further North in Walnut Creek, the 420,000 sf Walnut Creek Executive Park is rumored to be closing escrow; Central Garden may be relocating from Lafayette to 17,000 sf at 1340 Treat Blvd; Travelers is reportedly expanding by 10,000 sf at 205 Lennon Lane; Old Republic Title is rumored to be subleasing 19,000 sf at 3 Ygnacio, and Wells Fargo Bank is reportedly out seeking 60,000 sf. In Martinez, Secure Metrics sublet 19,000 sf at 757 Arnold Drive. Way out in East Contra Costa’s Brentwood, Elite Home Funding took 12,000 sf. Up in Fairfield, Solano County leased 45,000 sf at Executive Court North, formerly Providian’s space. In Emeryville, ManageStar signed for 16,000 sf at 5858 Horton, and Cartridge World leased 18,000 sf at 6460 Hollis St. In Berkeley, MSRI took 19,000 sf at 2850 Telegraph Ave. In Oakland, the big news was Ask Jeeves signing a 55,000 sf lease at 555 City Center, and Kaiser subletting 47,000 sf at 2101 Webster St. Also in Oakland, Boxer and Gerson leased 16,000 sf at the Rotunda Building, and Lighthouse Charter School took 18,000 sf at 345 12th St. On the other side of the Bay, up North in Santa Rosa, Basin Street Lakes leased 12,000 sf at 2227 Capricorn Way. In San Francisco, Coamerica took 30,000 sf at Two Embarcadero; Primitive Logic leased 12,000 sf at 704 Sansome; Exigen Group took 30,000 sf at 505 Montgomery St.; Embarcadero Technologies leased 24,000 sf at 100 California St.; Catholic Charites leased 22,000 sf at 180 Howard St.; Ernst & Young might be relocating to 65,000 sf at 560 Mission St.; Hoefer Inc. took 21,000 sf at 953 Indiana St.; and Synarc Inc. leased 36,000 sf at 575 Market St. Slightly South in S. San Francisco, Genetech expanded yet again by 110,000 sf at 611 Gateway, Exelixis might be subleasing 70,000 sf and Kosan 100,000 sf, both from Sugen. In San Mateo, NewCross Technologies leased 70,000 sf at 1875 Grant Ave., and at Redwood Shores, AMS took 15,000 sf at 3 Twin Dolphin Drive. In Foster City, Gilead might have signed for 140,000 sf at Vintage Park, and in Palo Alto, Ernst & Young may have leased 20,000 sf at 1001 Page Mill Road and Connetics Corp. might be subleasing 96,000 sf at 3160 Porter Drive.
In a recent study on biotech centers in the U.S. by the
Milken Institute, cities were ranked on two broad factors: the
infrastructure, such as the quality of local workers and the amount of R&D
money invested there that leads to biotechnology product development and the
success of the area in creating products, companies, and jobs. East Bay
Business Times (6/7/04)
#1 San Diego #2 Boston #3 Raleigh-Durham-Chapel Hill #4 San
Jose #5 Seattle-Bellevue-Everett
#6 Washington D.C. #7 Philadelphia #8 San Francisco #9
Oakland #10 Los Angeles-Long Beach
#11 Orange County, CA #12 Austin-San Marcos. Well, at least California
had 6 of the top 12 slots!
Michael Desiato, editor in chief of Real Estate Forum, expressed it well in his March 2004 edition. “For the past two years, we have been hearing that the economy is rebounding, but only enough for a jobless recovery. Personally, I don’t think a jobless recovery is good enough for real estate. After all, no one would doubt that as jobs go, so might space needs. However, I think it is time to stop agonizing over the job situation. The fact is, according to the best minds in the field, it’s here to stay. It’s not a blip and it’s surely not a cycle. It’s life going forward, and the realities of the market dictate that jobs will go overseas and outsourcing is the new world order. Nevertheless, according to these real estate experts, the jobless recovery is the new Big Lie. Did you know that since we began stressing over joblessness, we’ve added more than a million positions in the economy? Did you know that we’re now heading into our second quarter of positive absorption? A neat trick indeed, particularly since many companies continue to cut employment rolls.”
I’m trying to understand this logic - Bank of America is selling its 50 percent interest in the B of A San Francisco office building for $400 million, which would lead one to conclude a 100 percent interest would be $800 million. Yet, at the same time they are disputing the city property assessment evaluation of $768 million saying the value just 18 months ago was $501 million …
Twenty years ago we predicted the I–680 Corridor would be a major housing and job region (kind of obvious now, but back then maybe less so, or we would have all bought land for investment). Now out in the “valley,” Tracy Gateway is in the approval process, and is expected to provide 20,000 jobs in the future. “When completed, the Tracy Gateway project will include 6 million square feet of office space, 189,000 square feet of retail, and hiking/biking trails” (maybe they can build those exercise-office projects and make employees hike a mile or two from the parking lot to the building … ).
Quick update on the Bay Area job market from the Tri-Valley Herald (06/15/04): “So far, job growth is pretty modest in California and the Bay Area,” said Stephen Levy, director of the Palo Alto-based Continuing Study for the California Economy. “The loss of government jobs has certainly been a drag on job growth.” Levy said, while high-tech companies are seeing better profit margins, they have not yet started to hire more people. “Sales are up, profits are up but the (high-tech) jobs recovery hasn’t happened yet,” he said.
“Office buildings are about the juiciest target there is for an attack with chemical and biological agents: windows that don’t open, self–contained airflow, and lots of people in an enclosed space. That’s why Darpa, (Defense Advanced Research Projects Agency, www.darpa.mil) has an Immune Building Program. Specifics are mostly classified, but the goal is to defend against weapons like anthrax and sarin in heating, ventilation and AC systems. Internal sensors would switch the building into “precautionary mode,” activating defenses such as ultraviolet to kill bacteria, and venting the dangerous stuff away from occupied areas. A higher-level response would include “techniques that would be toxic to the occupants still in release area,” according to Darpa,” Wired (7/2004). Great, counter-attack by the killer buildings … maybe telecommuting isn’t so bad …
Construction costs still going way up … According to a Washington Post article (6/14/04), “Construction materials began their steady price rise last fall. Since then, there has been no let up in the upward climb. China has seen a surge in new commercial and residential development and has been tying up ships that would have been used to deliver cement from places such as Asia and Latin America. Steel, lumber and plywood have also seen price hikes.” Some material costs have gone up as much as 15 to 50 percent during the past 12 months.
Ouch! According to the San Francisco Chronicle (6/4/04), “The Santa Clara County assessor has slashed the values of about 1,200 office and industrial buildings by about $8 billion, further underscoring Silicon Valley’s protracted high-tech slump.”
In the past, Economic Development Incentive Programs were usually a lot easier to obtain and with fewer strings attached. Today, in part due to state budget deficits and less-than stellar returns on some past economic incentives (i.e. giving away the “store” to obtain a call-center operation, only to see it relocate to India five years later … ), there is much more accountability today. Corporate Real Estate Leader (March 2004). “Now, money that was once offered to companies with ‘no strings attached’ is a thing of the past. As a result, state and local governments have instituted a number of different measures to hold companies accountable for the commitments that they make … Overall, increased monitoring is a trend that is expected to continue in 2004 and future years as the focus on state budgets and also on corporate governance grows stronger.”
There are several Bay Area architectural firms busy remeasuring office buildings the old-fashioned way - by hand, and according to a recent East Bay Business Times article (6/25/04), “Adding leasable space to an office building can often be done with only a measuring tape. A thorough remeasuring of a building almost always adds 5 percent to 12 percent to its recorded square footage - and, therefore, the monthly lease payment … The cost of measuring a building can range from 6 cents to 13 cents a square foot for a building built after 1960 to 12 cents to 25 cents for an older building.” Add water and a tape measure, and just watch your building grow …
In The Contra Costa Times (7/1/04), “U.S. Chamber of Commerce President and CEO, Thomas Donahue urged American companies to send jobs overseas as a way to boost American competitiveness and even increase employment - a stance that rankles jobless workers, particularly in the flagging technology industry. Donohue said Wednesday that exporting high - paid tech jobs to low-cost countries such as India, China and Russia saves companies money that they may use to create new jobs. Technology consulting firm, Gartner Inc., estimates that 10 percent of computer services and software jobs will be moved overseas by the end of the year. The outlook in the San Francisco Bay Area - home to legions of unemployed programmers since the dot-com bust of 2000 is particularly bleak. Nearly one-third of local workers or 31 percent are worried about losing their jobs, compared with 18 percent for the nation, according to a survey released Wednesday by staffing firm, Hudson Highland Group Inc.”
Real Estate Forum (June 2004), “According to a survey competed in conjunction with the Gallup Organization, nearly 40 percent of the surveyed companies expect that knowledge workers - those who contribute intellectually rather than manually - will spend between 25 percent and 50 percent of their time working from remote locations by 2010. Technology will also facilitate another major trend: outsourcing. Being truly networked and integrated with your suppliers and service providers means that your company can outsource new and different types of services … So what does this mean for corporate real estate? For one thing, companies will eventually require less space because technology is finally allowing knowledge workers to work remotely.”
Our son, Jordan, who just turned 7 on May 26, had a great Little League Season with the awesome Rockies. I helped coach, and what a thrill to see these little guys make such amazing progress during the season. Boys unable to catch at all at the beginning of the season were comfortable at first base toward the season's end, the excitement when someone hits a ball to the outfield or snagged a pop-fly. What a blessing to have shared this with them! Hard to believe baseball finished mid-June, and as a soccer coach we've already started our coach classes and planning meetings with practice starting this month. Jordan also finally learned to ride a bike last month and now wants to go riding every day - his grandfather bought him a cool mountain bike, so he has lots of adventures ahead. Little Madison turns 2 this month, and is actually starting to say words we can understand. Now at night the big event at bedtime is reading 2 to 3 children books to Madison, and then a few hours later having Jordan read aloud to us a few chapters from a “real” book (i.e. one without pictures). Photos of their recent adventures can be found HERE. Life is good!
Have a great, safe and enjoyable rest of your summer, and if we can ever help you or your associates with commercial real estate requirements please don't hesitate to call.
Thank you!
Sincerely,
Jeffrey S. Weil, MCR.h, CCIM, SIOR
Senior Vice President
Colliers International
1850 Mt. Diablo Blvd., Suite 200
Walnut Creek, CA 94596
Ph. 925.279.5590 Fax. 925.279.0450
jweil@colliersparrish.com
www.officetimes.com