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“The
San Francisco office market has continued to
tighten in the fourth quarter, falling 50
basis points to 13.2 percent, according to
the latest market report from Colliers
International. The rate – the lowest in
four years – is down 200 basis points from
this time last year and may venture into the
single digits by the end of 2007,” according
to the report.
CityFeet
(1/10/06) “The San Francisco commercial
property market is climbing its way out of a
downward spiral that began with the dot-com
bust. As of the third quarter of this year,
the office-vacancy rate was down to 12.5
percent – the lowest level since early
2001. Tenants are filling up buildings,
rents are being bumped up and office users
are leasing more space than they are
vacating.”
Investors Business Daily
(12/30/05)
Here comes the new wave of office
development – this will start slowly and in
spurts and accelerate as the gap between
today’s office rents and new construction
proforma rents narrow. “Developer Jay Paul
of San Francisco has tied up 52 acres in the
Sunnyvale Moffett Business Park with visions
of a stabilized 1.6 million sf Class A
office park worth $750 million … the plan
is to complete the entitlement process and
close on land in the spring and then break
ground in the summer.”
CityFeet
(12/04/05) “Tishman Speyer is planning to
begin developing San Francisco’s largest
entitled office site as soon as next year
(2006) – with or without a tenant, The New
York firm is fine-tuning plans to transform
a parking lot at 555 Mission St. into a
547,000 square foot office building. Its
goal is to break ground mid-2006 and deliver
the space in early 2008.”
San Francisco Business Times
(11/25/05)
In just the month of December 2005, the
State of California added 24,300 jobs,
pushing the unemployment rate down to 5.1
percent. For all of 2005, employers created
233,700 jobs, a growth rate of 1.6 percent
that brought California payrolls to about
14.9 million in December.
San Francisco Chronicle
(1/21/06) “The East Bay accounted for
about 60 percent of all the new jobs created
in the Bay Area during 2005 … producing
nearly 10 percent of the 233,700 new jobs
gained in all of California. What’s more,
some analysts who track the economy in the
Alameda-Contra Costa region and elsewhere
say the area is poised to become even
stronger in 2006.”
Contra Costa Times
(December 1/21/06)
Enhancing employee collaboration, increasing
communication while increasing space
efficiencies … finding a way to make a
hallway or gathering space do more than one
thing. “By increasing the width of a
circulation hallway or space pocket, and
placing soft seating and a teaming table
there, we’re able to maximize use of that
space by creating an informal collaboration
hub,” according to Carol Rickard with Little
Diversified Architectural Planning.
“Employees are able to concentrate on a
project alone if necessary, but can
correspond with colleagues at a moments
notice with the informal meeting area
located just steps away from individual
workstations. We call it ‘chair ballet,’
says Rickard, people literally wheel
themselves over to the table and are able to
meet. Even the walls reflect this concept:
They’re covered with material that turns the
surface into a dry-erase board, which can be
used for formal presentations or
spur-of-the-moment discussions. ‘Conference
rooms really are not an efficient use of
space, because they’re dedicated to one
function that’s used only 15 to 20 percent
of the time,’ says Rickard. Companies are
starting to look at their bottom line and
say; ‘How do we make our space do more?’
Buildings
(December 2005)
“The Outsourcing Reality – Backlash against
outsourcing to India has diminished,
primarily because corporate America stopped
talking about it. But it hasn’t stopped
doing it. Today, experts estimate that
one-half to two-thirds of Fortune 500
companies have sent jobs to India because
they can’t afford not to do so” … U.S.
commercial real estate brokerage and
development companies have landed in India
during the past 10 years, and with an
estimated 2 million IT/ITES workers expected
to be added to India’s labor pool in the
next four to five years, at 100 sf per
person this would translate to a need for
150 to 200 million square feet of additional
office space.
Commercial Investment Real Estate
(Jan/Feb 2006)
“Planning for Disasters – The recent
hurricanes that struck the Gulf Coast region
and parts of Florida have shown the need for
better disaster planning on the part of
building owners and managers. From data
protection to site selection, a host of
technologies are available to help
facilities better prepare. The location of
a data center is critical for the survival
of a facility and its tenants in the event
of a disaster. Basements are among the
worst places for a data center, due to their
tendency to flood. The top floor is also a
bad place, meaning that the building’s
central core is ideal. Fuel needs to be
available for a building’s back-up
generator. Consequently, it becomes
important to know how much will be needed in
the event of a disaster. A multi-fuel
generator is recommended, one that can run
on both gasoline and natural or LP gas.”
Today’s Facility Manager
(October 2005)
A few interesting snippets from a recent
article on corporate real estate trends …
“Despite a push away from real estate
ownership, U.S. corporations invested $1.2
trillion in their facilities, such as office
buildings, industrial campuses and call
centers, in 2004.” That figure, according
to Ernst & Young LLP’s recent U.S.
Investment Monitor, was the highest since
2000. Of that amount, $270 billion was
spent on new properties and $950 billion was
used to replace or renovate existing
assets. The survey also indicated there
have been sizable investments in new
back-office and call center facilities in
the U.S., “even taking into account all of
the stories about the explosion of
offshoring,” says Chris Steel, “a business
location specialist with Ernst & Young’s BRS
practice in New York City … And despite
their high business costs, New York and
California continue to see new construction
coming from the biotech, publishing and
high-tech sectors.”
Real Estate Forum
(December 2005)
Outsourcing … “Equinox is a company in
Irvine that processes mortgage documents in
India for America lenders. Chisk Inc., is
exploring ways to outsource routine
legal-discovery work to India. India is
making a transition from being only a back
office. In the pharmaceutical industry and
others, you will see India’s companies
playing a bigger role in the world.”
San Ramon Times
(12/15/05)
“While cheaper labor is the main reason
companies take business overseas, offshoring
also is boosting corporate bottom lines
through capital savings,” according to a
Boston Consulting Groups study. In a
rapidly developing economy, a company can
add about 6 percent to the return on capital
expenditures such as manufacturing
facilities, researchers found. By using
locally made equipment, companies save 20
percent to 80 percent on fixed assets, and
since labor is cheaper, they use more labor
and less or older machinery. Better
productivity is an added bonus as most
offshore locations have six-day work weeks
and lower pay for overtime and holidays.”
Commercial Investment Real Estate
(Jan/Feb 2006) Not including the great
benefit packages and pension plans offered
overseas …
In reading “Contra Costa’s credit rating
falls due to declining reserves,”
San Ramon Times
(12/1/05), leads me to wonder if all city,
county and state governments understand that
the past four years of housing fury which
generated huge amounts of government tax
revenue might not be sustainable and future
budgets should reflect this …
Just in case someone stops you in the
hallway and asks if you know what BACnet is
(no, its not a tennis term … ) BACnet is a
data communication protocol for Building
Automation and Control Networks. BACnet is
an American national standard, a European
pre-standard and an ISO global standard, and
has the ability to tie in utilities,
financial systems, work order systems and
other enterprise-level systems to share data
for a more efficient, coordinated facility.
If you’d like more information please go to
www.bacnet.org.
Insourcing – “Insourcing is defined as jobs
created by U.S.-based subsidiaries of
corporations based in other countries.
California is in the forefront of insourcing,
according to a report released Wednesday by
an association of foreign companies with
U.S. operations. The Golden State has the
most ‘insourced’ workers of any state in the
country, with 561,000.”
San Ramon Valley Times
(12/1/05)
Deals & Rumors:
Vacancy rates continue downward and
here’s why: In
San Francisco,
Advent Software leased 100,000 sf at 600
Townsend St.; Stub Hub leased 18,000 sf at
55 Second St.; Surplus Line Associates took
19,000 sf at 50 California St.; Pepler
Mastromoncaco LLP leased 11,000 sf at 100
First St.; Barclays Global Investors
preleased 321,000 sf at 400 Howard St., to
be built as part of Foundry Square; GSA
leased 70,000 sf at 50 Beale St. as well as
71,000 sf at 120 Montgomery; GroundWork Open
Source Solutions will be relocating from
Emeryville to a 15,000 sf sublease at 139
Townsend St.; Blue Shield is still rumored
to looking at renewing or relocating 250,000
sf in San Francisco, and CitiCorp might be
looking for 90-100,000 sf; Clarium Capital
Management took 22,000 sf at the Lucas
campus in the Presidio; Kirshenbaum Bond &
Partners leased 20,000 sf at 1596 Howard
St.; Alaska National Insurance inked for
10,000 sf at 601 California St.; and Yahoo
just expanded by 43,000 sf at 475 Sansome
St. Up in
Novato,
Bank of Marin leased 30,000 sf at Pell
Plaza. Down the Peninsula, in
South San Francisco,
Genetech expanded once again by 125,000 sf
at 681 Gateway Blvd. Virgin America will be
leasing 42,000 sf at 555 Airport Blvd. in
Burlingame.
In
Foster
City,
Entelos Design Labs is reportedly searching
for 400,000 sf, with one source reporting a
possible LOI at Pacific Shores in
Redwood City,
and in the same city, Merced System leased
28,000 sf at 333 Twin Dolphin Dr. Over the
Bay in
Emeryville,
ZipRealty expanded to 23,000 sf at
Watergate, and in Downtown
Oakland,
the University of California is planning a
11-story office building with 190,000 sf for
2008. In
Concord,
John Muir is rumored to be doing a 70,000 sf
build-to-suit in North Concord and Fidelity
Home Warranty is rumored to be leasing
33,000 sf at One Concord Gateway. In
Walnut Creek,
the 100,000 sf Class A 2700 Ygnacio Valley
Rd. just sold, as did the 28,500 sf 100 N.
Wiget Lane office building. In
San
Ramon,
Bedford sold his two office buildings on
Crow Canyon and Taylor Woodrow leased 18,000
sf at Bishop Ranch 8. In
Pleasanton,
Tanner Insurance expanded to 34,000 sf at
4480 Willow Road, MacKay & Somps expanded
from 11,000 sf to 20,000 sf at 5142 Franklin
Dr. I sold the 67,000 sf 6101 Stoneridge
Drive former PeopleSoft/Oracle building to
Thoratec Laboratories for their
headquarters, the 200,000 sf Hacienda Lakes
just closed escrow last month, and the
285,000 sf Cisco buildings across from the
Pleasanton BART Station are rumored to be in
escrow to an owner/user.
Office environments affect creativity …
“More than half, 55 percent, of 250
advertising and marketing executives polled
said their office environments ‘greatly’
affect innovation. And, 38 percent
responded that their workplaces impact staff
creativity ‘somewhat.’” The survey was
conducted by an independent research firm
for The Creative Group, a staffing agency
based in Menlo Park. “Physical surroundings
can heavily influence an employee’s ability
to concentrate and perform well,” said
Tracey Fuller, executive director of the
Creative Group. “Companies can encourage
productivity and innovation by providing
staff
members with comfortable, attractive areas
for team meetings, as well as individual
work stations that can be tailored to
personal needs and preferences.” To create
stimulating work environments, The Creative
Group suggests: having “creative zones”
where informal meetings can occur; offering
private sanctuaries where employees can work
without distractions; maximizing
opportunities to benefit from natural
daylight; installing an “idea wall” where
employees can post ideas; and, holding
meetings in unusual places to spark
creativity.
East Bay Business Times
(11/25/05)
“The U.S. Bureau of Labor Statistics reports
that building materials spiked in 2005, with
asphalt increasing 25 percent and plastic
plumbing soaring 39 percent during the
12-month period ending on Nov. 30.”
BOMA
(1/19/06)
If you would like to view the Colliers
International Office Real Estate: Vision
2006 Forecast, go to
www.officetimes.com/Office06RE.pdf.
Features include Top 10 Trends, including
Acute shortages of large blocks of space
will increasingly be reported. A handful of
markets are going to be the catalyst to push
rents significantly higher; and the Office
– Investment Market Summary (core buyers
will pursue Class A, value-add buyers, Class
B, and Class C real estate will disappear
for adaptive re-use). There is also a
12-month office forecast.
The case for wireless – Building automation
through a wireless system incorporating
HVAC, door locks, security, lighting and any
other system that a facility manager wants
to include … “Wireless is fast becoming one
of the best ways to monitor and report
system alarms, HVAC failures, or emergency
occurrences such as frozen pipes, water in
the sump area, carbon monoxide, fire or
medical emergency. One of the problems with
adopting any new technology is the question
of reliability. And rightfully so. A
facility manager has the option of
installing a redundant system at the central
station, composed of a second receiver and
monitor. Planning for backup batteries for
portable units and backup power will
facilitate a seamless operation. In most
cases, access control and key infrastructure
protection are the major beneficiaries for a
wireless-based system. Intrusion and
equipment sensor monitoring provide the most
tangible potential benefits for facility
managers. Once the HVAC, access control,
and lighting systems have been incorporated
into the wireless system, the building can
begin to run much more efficiently. Costs
from having maintenance staff on hand can be
reduced, and rather than having to access
the lighting system from a terrestrial
computer station, a facility manager can
access it wirelessly and shut the lights off
from anywhere. This contributes to energy
conservation and reduces costs. A wireless
system is highly superior in a disaster.
Sensors/transmitters are generally not
affected and continue to perform and connect
back to the central station, providing data
on a continuous basis through the crisis.
Because the system continues to operate, not
even something as catastrophic as a
hurricane or e arthquake
will force the wireless system to stop
working. There is no ‘cutting’ a wireless
network or infrastructure. By contrast a
Sonet ring or cable can be physically
damaged or severed, thus interrupting
terrestrial connectivity.”
Today’s Facility Manager
(November 2005) Every time I see the phrase
“terrestrial connectivity,” I flash on ET and
his outstretched fingers, not building
systems …
Jobs for 2006? “Will new and better-paying
jobs provide the income boost consumers need
to keep the economy bustling in 2006? Even
if the economy adds another 2 million jobs
each year until 2010, total employment
growth from 2000-2010 will be about 14
million – the lowest figure of any decade
since the 1950’s, according to Torto Wheaten
Research. Economists say today’s more
efficient companies have simply learned to
grow with fewer new hires.”
National Real Estate Investor
(December 2005)
“The Tri-Valley region including San Ramon,
Dublin, Pleasanton and Livermore filed three
times the per capita rate of patents as
compared to the State of California and five
times higher than that of the United
States. Forty-four percent of Tri-Valley
residents have bachelor’s degrees or
higher. Since 1990 more than 18,000 new
companies have been created here.”
Diablo Magazine
(January 2006)
“Despite falling vacancies and limited new
construction, the national office market is
experiencing only a modest uptick in rents.
Landlords in tight markets like Washington,
D.C. and New York City are two notable
exceptions to the rule. Data from New
York-based REIS shows that average effective
rents nationally increased by just 0.9%
between mid-year and the end of September
when they hit $20.45 per sq. ft. And rents
are still well below the $27.35 per sq. ft.
peak achieved in late 2001 … How can that
be? One explanation behind the slow office
recovery is the rise in worker productivity
since the recession. Also, corporate real
estate executives have become more adept at
controlling occupancy costs. The prospect
of slower job growth, higher energy costs
and rising interest rates in 2006 could only
compound the problem for landlords.”
National Real Estate Investor
(December 2005)
There are several additional factors having
a major impact on office absorption.
Leasing velocity is still relatively slow,
particularly in office leases of more than
10,000 sf. I have reported every 10K and
larger transaction in the Bay Area every
other month for the past 25 years.
Comparing current and near-recent figures
(please go to
www.officetimes.com
to see past OfficeTimes newsletters) with
the heyday of 1999-2001 or the early 1980s
boom years illustrates this trend. Also,
the effect of offshoring may be larger then
many want to think – there have been huge
amounts of job growth created during the
past few years by U.S. corporations, but
these jobs are occurring in India, China,
the Philippines and not
on American soil. A third major reason is
telecommuter/virtual office/cube sharing
etc. which for a number of corporations has
allowed significant office space reductions
while still maintaining or even increasing
employee headcount.
“Sun Microsystems has been a pioneer in
driving down occupancy costs. Through its
iWork Solutions initiative, more than half
the company’s workforce – 20,000 out of
35,000 employees – don’t have assigned
seats. Workers can enter any Sun
Microsystems facility around the world, log
on to a computer, and access their own files
and have calls routed to their
workstations. By taking that aggressive
stance, Sun Microsystems has been able to
shed millions of square feet from its real
estate portfolio and trim its annual real
estate operating budget from approximated $1
billion in 2000 to $450 million today.”
National Real Estate Investor
(December 2005). In the “good old days”
there would be frequent media announcements
of huge corporate hirings and with that
major office expansion … now we see
headlines such as on November 29, 2005
“Merck to slash 7,000 jobs” or “Ford rumored
to be laying off 30,000 including 12% of
their office workers” … and it takes a lot
of 2 to 7,000 sf startups to fill these
shoes …
The Dead Zone: “Everyone has had the
frustrating experience of a cell phone call
being dropped in a dead zone. This
occurrence can range from a minor
inconvenience to a major disruption in
business. Assuming the user is in a
populated area that has reasonable good cell
coverage, this problem can be related to
either a coverage hole or structural
interference. The solution to both coverage
holes and structural interference is the
same: a cell phone repeater system. These
systems are fairly simple to install and
quickly and economically solve cell signal
problems.”
Today’s Facility Manager
(November 2005)
Near Stockton/Tracy, Mountain House has been
going gangbusters building out an entirely
brand new city of 45,000 residents. Now to
go along with all this new population
construction is about to begin on a 1.7
million-square-foot business park, with 1
million square feet of Class A suburban
office, 250,000 square feet of office/flex,
300,000 square feet of retail and two new
hotels. Please call me if you want to tour
this project or get additional information.
One approach to hiring … “To lure workers,
Google offers perks, including free
cafeteria meals, free use of laundry
machines, a child care center, a free annual
one-night ski trip, dog-friendly offices and
an on-site doctor. Engineers can devote 20
percent of their time to projects of their
choice. What’s not mentioned is that much
of the largesse is designed to keep workers
at their desks longer.”
San Francisco Chronicle
(12/15/05). This gives new meaning to the
dog days of summer, there’s no such thing as
a free lunch, and keeping your dirty laundry
out of the office …
“The U.S. markets seeing strong population
growth are those with high-paying jobs and
high quality of life. Well-established
markets with low salary and benefit ranges
are also seeing population inflows. But as
markets with strong in-migration continues
to grow, housing affordability could drop.
Top in-migration cities by market type:
High-tech swing cities are Austin; Denver;
Raleigh-Durham; San Jose; Seattle … quality
job centers are Nassau-Suffolk, N.Y.; Orange
Co., CA; San Diego, CA; Washington, D.C.
Affordable job centers are
Atlanta-Charlotte, N.C.; Dallas-Fort Worth;
Houston; Orlando; Tampa-St. Petersburg,
Fla.”
Realtor Magazine
(December 2005)
At the recent World Economic Forum awards
program held in Davos, Switzerland, which
recognizes on an international business
basis those companies whose technology could
transform commerce and society, almost half
of the 36 awardees are based in the United
States, and of those 17 firms, 11 came from
Northern California.
San Francisco Chronicle
(12/15/05)
I’ve heard a lot of complaining and
hand-wringing about all the American jobs
that have been offshored. It’s as if we are
losing entire sectors of industry that
formerly employed American workers on
American soil. Let’s step back and look at
this objectively versus emotionally. There
are at least five reasons that support the
premise that global offshoring might be good
for America. First, this is a global
economy and in order to be globally
competitive, American companies must utilize
all methods and processes that can keep
costs down. I had an international
engineering client that was losing
international jobs to foreign competitors
who hired engineers in India for
$20,000/year versus my client whose
per-engineer overhead in the U.S. was
$100,000/year. They recently packed up and
moved these jobs offshore. There is a lot
of corporate profit today in American
companies and part of this is due to usage
of lower cost goods and services offshore.
Second, if we were to keep these low-paying
jobs, either minimum wage laws would
prohibit them or Americans wouldn’t want to
work for $5 or $7 per day. Third, our
unemployment rate is 5.5 percent, and my
friends running companies tell me it is
extremely hard to find new qualified
employees as everyone seems to already have
a job, Fourth, I have a lot of faith in
American creativity, tenacity and doing
whatever it takes to succeed, and we are and
will continue to be at the forefront of
creating the technological, biological and
other tools needed for tomorrow’s industry.
Fifth, we flattened the world ourselves
creating computers, intranet, fiber,
high-speed transmission, software and
everything else that China, India and other
countries are utilizing. We sold it to
them, so why should we complain when these
clients actually use our products to
facilitate offshoring?
“Oracle Corp. plans to add 1,400 employees
to its sales, consulting and support
operations in India, as it focuses on
expanding business among small and mid-sized
companies in the country’s towns and rural
areas. Oracle already operates in six
Indian cities, and it plans to set up ship
in nine more in the next eight months, as it
adds to its Indian workforce of 8,600.
“This expansion can give us a whole wave of
growth,” said Derek Williams, executive vice
president for Asia Pacific at the Redwood
City software company. He said India is one
of Oracle’s fastest-growing markets in Asia
and called the country’s smaller towns the
“up-and-coming economic engines of India.”
San Francisco Chronicle
(1/11/06) Microsoft will invest $1.7
billion in India during the next four years
and nearly double its employee ranks in the
nation, its chairman, Bill Gates, said. “We
have about 4,000 people; we would be growing
that by over 3,000 in the next several
years.”
Contra Costa Times
(12/8/05) “J.P. Morgan Chase said it plans
to double its staff of 4,500 employees in
India by 2007.”
Tri-Valley Herald
(12/12/05) “Intel announced that it will
invest $1.1 billion in India over the next
five years, hiring more people in India to
tap into a highly educated work force that
can be employed at a fraction of costs in
the United States.”
San Francisco Chronicle
(12/6/05) So hang on tight, this ride has
only begun!
“ProLogis Corp’s $5.5 billion acquisition of
Catellus Development Corp. resulted in a
portfolio com-prising 372 million sq. ft. in
2,336 properties in 75 markets around the
world.”
Real Estate Forum
(November 2005)
The last few months have been filled with
special family moments. My wife and I took
our two children, Jordan, 8, and Madison, 3,
to Monterey for several days of visiting the
Monterey Aquarium and checking out Cannery
Row. During the December holidays we
learned to appreciate the basics as up at
Lake Tahoe, we were totally without power
(as were 10,000 other homes) for more than
two days. Candlelight is romantic but with
two kids used to the DVD player, the
toaster, microwave and lights, it became
quite an adventure playing board games and
putting together puzzles by flashlight. It
actually turned into one of the most special
family events I’ve ever experienced! In
January, Madison started ski lessons for the
first time while my wife, son and I explored
the upper regions of Squaw Valley’s famed
slopes. By the time you read this, we will
be completing a six-day ski clinic where all
four of us will be taking all day lessons at
Taos, New Mexico. For those unfamiliar with
Taos, the base is 9,500’ and rises to more
than 12,500’ with some of the most
spectacular ski runs in the world. Please
go to
www.officetimes.com/JMFeb2006.htm
if you’d like to see photo’s of their recent
adventures.
I hope you have the best winter ever,
whether you are in Minnesota or Hawaii, and
if we can assist you or your company in any
way please don’t hesitate to call. Thank
you! |
