|
“On August 28th, 2007 at precisely 3:25
p.m., the office investment market peaked –
however, it may take buyers and sellers up
to six months before they full realize this
phenomenon.” I made this statement almost a
month ago when I was giving a speech on the
current and future state of the San
Francisco Bay Area office market to the
Investment Marketing Forum. Let’s face it,
the past six months, investment sales can be
best described as “Hyper-Frenzied” … office
buildings selling at 4 percent cap rates,
record prices almost equaling (and sometimes
exceeding) the cost of new construction,
underwriting based on some mythical future
rent rate figure with often no underlying
validation based on the actual market rate
or trends … the catalyst that stopped all
this was the collapse of the residential
lending market, with subsequent
repercussions in the commercial lending
arena. We are now seeing more conservative
equity requirements and rental rate
assumptions, and a shift from “optimistic”
to “realistic” valuations. In conversations
with major commercial escrow agents during
the past 30 to 45 days, a number of pending
major transactions have fallen through,
buyers have gone back to sellers for
repricing and sellers have withdrawn
properties from the market. A number
of recent articles have appeared on this …
“Commercial real estate prices depressed …
commercial real estate prices may fall as
much as 15 percent over the next year in the
broadest decline since the 2001 recession as
rising borrowing costs force property owners
to accept less or postpone sales,” SF
Chronicle (9/6/07) “Credit Crunch Takes
Bite Out of Commercial Lending Capacity,”
California Real Estate Journal
(9/4/07). One side effect of note is
when the new buyers who paid top-dollar for
their office building acquisition take over
operations which in many cases rental rates
are raised substantially. Usually
these asking rental rate increases have no
relationship whatsoever to the actual market
and I’ve seen many instances where, with the
same quality and location, the rent
differential may be as high as $0.50/rsf per
month ($6/sf annum). An astute tenant
with an equally astute leasing
representative might come to the conclusion
that, even with the cost of a move,
relocating to the project next-door and a
new more efficient layout could provide
substantial savings. To see a Class A
2003-2007 Office Rental and Vacancy
Comparison for the major Bay Area regions as
well as my comments, please
click here.
Desires and wishes versus reality … “In a
survey that formed the basis for the ‘Energy
Challenge: A New Agenda for Corporate Real
Estate,’ a report recently released by
CoreNet Global and the Rocky Mountain
Institute, nearly every executive picked
‘important’ or ‘most important’ to describe
the significance of energy efficiency (94
percent) and sustainability (83 percent)
among all issues affecting corporate real
estate. Unfortunately, the same report
found that fewer than half of participants
have energy policies or consumption targets
in place, and less than a third of the firms
surveyed are working on finding no-cost and
low-cost ways to lower energy consumption,”
Real Estate Forum (June 2007).
I’m not sure if you or I will be still
actively working, but California’s
population is expected to increase from its
current 36 million to 60 million by 2050
with the highest rates of growth in Southern
California, East Bay Business Times
(7/13/07).
In the North American Office Real Estate
Highlights, 2nd Quarter 2007, “US office
vacancy posts modest decline … Office rents
surge higher – For the sixth consecutive
quarter, both downtown and suburban asking
rents registered substantial increases.”
Colliers International – to see the
entire report with more detailed information
on more than 100 cities please
click here.
If you’d like to see the Colliers Mid Year
2007 Global Office Report Real Estate
Review, please click
Global Office Review.
Interested in easy ways to get in shape at
the office? Check out
www.officetimes.com
for a number of solutions to this with our
“Getting In Shape At The Office” section.
California Assembly Bill 32, enacted by the
California legislature in September 2006,
“establishes a goal of returning California
to 1990 greenhouse gas emission levels by
2020 – roughly a 30 to 35 percent decrease
from business as usual. Furthermore, via
executive order 5-3-05, Governor
Schwarzenegger has mandated that by 2050,
GHG emissions are to be ‘capped’ at 80
percent below 1990 levels,” Perspectives on
Apartment Management (July 2007). Let’s
see, earlier I quoted the California
population increase going from 36 to 60
million… Wonder how this will all work out
with 24 million more emissions generators …
Deals & Rumors: Let’s start with the
Peninsula for a change … IBM leased 60,000
sf at 1000 East Hillside Blvd. in Foster
City and in the same city VEGA took 13,000
sf at 348 Hutch Dr. Farther down in Palo
Alto, Goodwin Proctor LLP leased 21,000 sf
at 181 Lytton St. Google sublet 180,000 sf
at 901 Cherry St. in San Bruno. In
Redwood
City, Checkpoint Software Technologies
sublet 48,000 sf at 800 Bridge Parkway and
Model N. expanded by 12,000 sf to 50,000 sf
at Redwood Shores. In San Mateo, Newscale,
Inc. sublet 32,000 sf at 2215 Bridgepointe
Parkway and Guidewire Inc. sublet 88,000 sf
at 2211 Bridgepointe Parkway. In South San
Francisco, Elan Corp. leased 38,000 sf at
601 Gateway. Across the Bay in Fremont, Mobius Power Inc. took 12,000 sf of R&D
space at 46840 Lakeview Blvd. and DSL Labs
Inc. leased 22,000 sf of R&D space at 47633
Westinghouse Dr. In Hayward, Mendel
Biotechnology sublet 54,000 sf at 3929 Point
Eden Way and Prologix leased 33,000 sf at
3544 Arden Rd. In San Leandro, Greater Bay
Bank took 11,000 sf at 1495 E. 14th St. Up
in Oakland, VRT Insurance doubled to 11,000
sf and Kimley-Horn & Assoc. doubled to
12,000 sf, both occurring at Oakland City
Center, and Saylor & Hill expanded to 10,000
sf at 1999 Harrison; Emeryville was very
active, with Amyris expanding by 70,000 sf
at Emery Station East, where Novartis
Vaccines will be taking 36,000 sf; Ink 2
leased 12,000 sf at 4062 Watts St. and Bayer
took 10,000 sf at 5762 Peladeau St. Across
the hills in Walnut Creek, I represented
Longs Drug Stores on a 51,000 sf office
lease renewal at 575 Lennon Lane, Littler Mendelson took 11,000 sf at 1255 Treat
Blvd.; Group LLC leased 11,000 sf at 2121
N. Calif. Blvd., and Residential Pacific
Mortgage took 12,000 sf at 2175 N. Calif.
In Lafayette, California Bank of Commerce
will be taking 10,000 sf at Lafayette
Mercantile. In Concord, Eskanos & Adler
leased 10,000 sf at 2300 Clayton. Down the
I-680 in Pleasanton, Transdyn Inc. leased
21,000 sf at 4256 Hacienda Dr.; Frontrange
Solutions relocated from Dublin to 5671
Gibraltar, and Gatan expanded to 38,000 sf
at 5794 W. Las Positas. In Livermore,
National Food Laboratories signed a
long-term lease for 30,000 sf, relocating
from Dublin; Tosoh SET may be looking for
35,000 sf in the Livermore area and LAM
Research may be buying the KLA Tencor
240,000 sf R&D facility at Collier Canyon.
Hop-scotching over to Marin, Stormfront
Studios leased 24,000 sf at 1600 Los Games
Rd. in San Rafael. In San Francisco,
Bloomberg LP leased 31,000 sf at Piers 1 ½,
3 & 5; Novacea Inc. leased 25,000 sf at 400
Oyster Point; Bridgespan Group took 16,000
sf at 465 Calif. St.; Bankserv signed for
18,000 sf at 333 Bush St.; Salesforce
expanded by a total of 100,000 sf with
40,000 sf expansion at One Market Plaza and
63,000 sf at 1 Calif. St.; RREEF is
expanding into 44,000 sf at 4 Embarcadero
Center; Goodwin Proctor LLP will be
expanding and relocating to 26,000 sf at 3
Embarcadero Center; Moderati Inc. took
18,000 sf at 795 Folsom St. At 71
Stevenson, VMWare will be expanding by
14,000 sf; Intuit will be taking 14,000 sf
and Regus Group will be leasing 18,000 sf;
Peckar & Abramson PC leased 12,000 sf at 455
Market St.; Dolby took 33,000 sf at 475
Brannon St.; Bebo, Inc. leased 31,000 sf at
795 Folsom St.; SF Sentry expanded to 14,000
sf at 100 Pine St.; Kirkland & Ellis LLP
expanded by 25,000 sf at 555 Calif. St. Not
including lease renewals, this past 60-day
list totals 1,645,000 sf … not too shabby!
An Evacuation Planning Matrix that offers
planning considerations and online resources
to reduce susceptibility to terrorist acts
is available by clicking on
OSHA.
The matrix covers the broad aspects of
emergency planning and includes questions to
help you review your existing plan. It also
offers basic planning and preparedness
measures for workplaces in each of the three
risk zones (most likely, possible and not
likely) Buildings (July 2007).
New construction rents depend on the
particular project, location, density, land
cost, etc. As a general ballpark, for most
of the East Bay for a new Class A office
building, figure $3.00 to $4.00/rsf, nnn,
and fully serviced, $3.75 to $5.00/rsf
including a $50/rsf tenant improvement from
warm shell. In San Francisco, the premier
future office project may be the 80-story
Transbay development with potential rents
averaging $100/sf per annum up to $130/rsf
for upper floors.
Wi-Fi for commercial buildings – “The latest
figures from a July 2005 Black’s Guide study
on commercial real estate trends show the
majority of those surveyed, 33 percent, said Wi-Fi was the most popular amenity demanded
by tenants nationally. In Los Angeles
alone, 32 percent of tenants requested Wi-Fi
in their buildings,” California Real Estate
Journal (8/20/07). However, who will pay
for Wi-Fi in a building and how does this
investment show a return? Is a fully
integrated wireless building system enough
of a tenant amenity to allow higher rents,
will it lower turnover, or will tenants who
really want this feature do it on their own
anyway?
Global Warming … Buildings account for 38
percent of CO2 emissions in the United
States … Buildings consume 70 percent of the
U.S. electricity load … according to the
USGBC, in the next
25 years, CO2 emissions from buildings are
projected to grow faster than any other
sector, with emissions from commercial
buildings projected to grow the fastest …
Four Ways to Shrink Your Building’s Carbon
Footprint: Know the size of your footprint
– understand what effect your buildings are
currently having on the environment, then:
#1 Pinpoint opportunities for reduction
(i.e. turn off lights when not using them,
use occupancy sensors, shut off computers,
monitors, task lighting when the occupant is
away for a significant time) #2 Trade out
old systems – invest in high-efficiency
products that will reduce energy usage even
more – instead of continuing to replace
motors and parts in your 20 year old HVAC
units, is it time to change over to new
units that might be 35 to 50 percent more
efficient? #3 Make use of green power, i.e.
solar panels, wind power #4 Purchase carbon
offsets/credits which create incentives for
someone else to generate carbon-neutral
power in a different place, Buildings
(August 2007).
My undergraduate alma mater, Haas School of
Business, ranked number three in
BusinessWeek’s annual undergraduate business
school assessment of U.S. schools. Haas
also ranked third in the U.S. News & World
Report ranking. Go Cal!
The latest North American CBD Parking Rate
Survey is out. San Francisco median
unreserved stalls go for $350/month, Oakland
$177.50/month and Walnut Creek $65/month.
Midtown New York is $630/month, Boston
$460/month, and Phoenix is $35/month. If
you’d like to se the entire survey, please
go to
www.officetimes.com/NAParkingSurvey.pdf.
Inc. magazine’s annual list of the 500
fastest-growing private companies in America
included 40 from the Bay Area and 91 from
California. For a full list, go to
500 Fastest Growing,
San Francisco Chronicle (8/24/07).
21st Century Security … one significant
development is with surveillance cameras.
While older models are usually 12” to 14” in
diameter, today tiny dome cameras typically
measure about 4” in diameter and include
full pan-tilt-zoom capabilities. Night
vision is inexpensive and commonplace.
Digital networked video allows signal
transmission through the Internet vs.
coaxial cables. Some managers are no longer
using on-site security personnel to watch
video camera feeds. Instead, they are
consolidating personnel remotely into
security offices that can access video of
multiple locations from a single site,
reducing labor costs. Using wireless
broadcasting, security officers in the field
can use pocket-sized computers to watch
without being seen. PatrolBots feature
wireless cameras that can navigate through
facilities including elevators without
bumping into walls or people, Today’s
Facility Manager (July 2007).
One big question is, how will the collapse
of the residential real estate market affect
overall employment and economic viability?
“East Bay jobs rise as housing falls …
Goodbye housing, and hello, health care …
even if some industries have imploded, the
East Bay continues to gain jobs overall.
Employment improvement has occurred during
the most recent month and the past year,”
Contra Costa Times (9/22/07).
The Concord Weapons Station planning
currently underway for the 5,028–acre former
base may allow 5 to 7.9 million square feet
of new commercial space with 17,000 to
29,000 jobs, and 8,000 to 13,000 residential
units. Parks, recreation and open space
range from 47 to 69 percent of total
acreage. It will be several years before
this project actually moves from concept to
construction reality.
The “Greenest” City Hall in California is in
Orinda. “The most novel features in
Orinda’s new City Hall aren’t the cork floor
tiles, or the ceiling fans, or the bathroom
partitions made of recycled yogurt
containers. What’s unique is a series of
wall signs that bear the words ‘open
windows.’ They light up when City Hall’s
cooling system snaps off, alerting workers
to take advantage of the buildings
potential for natural ventilation.” (Back
to the Future – openable windows in office
buildings used to be standard until the
1970’s). The Orinda City Hall was awarded a
coveted Gold rating. For more info go to
www.officetimes.com/OrindaCityHallGreen.pdf,
San Francisco Chronicle (9/5/07).
Who are your future tenants? Office
Employment in the United States 2004-2014 …
I bet you didn’t know that in 2004 there
were 60.035 million office workers in total,
which was 41.2 percent of all employed
persons. The largest occupational category
by far was Office Support Occupants, with
23.907 million workers. Between 2004 and
2014, management is expected to increase
11.32 percent, or 1.032 million; business
and financial operations 19.12 percent, or
1.123 million; computer and math 30.67
percent, or 967,000; architects and
engineers 12.49 percent, 315,000; health
diagnosing and treating 27.21 percent, 1.140
million. Source: National Center for Real
Estate Research, National Association of
Realtors (January 2007).
Just last month “California energy
regulators decided to let commercial
building owners charge their tenants for the
amount of electricity each uses, a seemingly
small change that could save the state a lot
of power. Until now, owners of a large
office building or other commercial property
had to pay the utility bill for the entire
facility and then recoup the money through
rents. Owners will now be allowed to
install electricity meters for individual
tenants and have tenants pay for the exact
amount of power they use … building owners
will not be required to install meters for
their tenants and can stick with the old
system if they wish. Tenants would have to
agree to the change,” SF Chronicle
(9/7/07).
What a great August and September our kids
had! Madison, who turned 5 on August 23rd
is in two difference city soccer programs
and absolutely loves the sport. When dad
wearily walks in the door at the end of a
weekday, Madison eagerly asks if she can
practice with her so she can show off
whatever new technique she just learned.
She is also taking a dance class and swim
lessons. Madison just started kindergarten,
and is blessed with a fabulous teacher at
Alamo School, Mrs. Nelson. Jordan, our
ten-year-old son went to Europe during
August with his parents and his 82-year-old
grandfather, Arthur. He was an awesome
traveler, and saw Pompeii, the Roman ruins,
the incredible Amalfi coast, and picturesque
medieval coastal villages like Portofino and
Dubrovnik. He spent several days in Venice,
checking out the Guggenheim, the Campanile
and St. Mark’s Square. Then it was off to
Paris by sleeper car, going up to the top of
the Eiffel Tower, seeing Mona Lisa at the
Louvre, Notre Dame and of course Rodin. The
last stop was London, with the Crown Jewels,
the London Eye, Salvador Dali Museum and
lots of rides on the Tube. Now it’s back to
soccer, Boy Scouts and school. Photos of
these recent experiences are at
www.officetimes.com/JMOct2007.htm.
|
