We are going to run out of office space! The Surgeon General should issue a major warning as the Bay Area office market, from a tenant’s perspective, either is or is about to become very unhealthy. Vacancy rates for almost all categories and locations range from 1 to 3 percent, and in many areas there is intense competition for what scarce space there is. I recently had a class A San Ramon sublease, five-year remaining term, and - no exaggeration - within a two-day period I had four full-price, as-is offers. Some areas are experiencing monthly rental rate increase of 5 to 10 percent per month. I’ve heard quotes of $90/sf per year for prime SF Embarcadero space $105/sf for the SF Pyramid, and even out in the lower-cost East Bay suburbs we are seeing $3.50 to $3.75/sf in Berkeley/Emeryville, $3 to $3.50/sf in Oakland, and $2.50 to $2.75/sf in Walnut Creek/San Ramon/Pleasanton. I expect the Pleasanton office market will hit $3.00/sf by the end of this year, with Walnut Creek and San Ramon to follow soon after. So what will happen? Exclusive tenant representatives like myself will always come up with solutions. Handling medium and major tenants’ needs will require more creativity, experience and local connections than ever before. Existing tenants who do not have renewal options, have rental rates way below market, are in the path of growing companies, and existing warehouse tenants all might think early on about their future alternatives. I expect the space drought to last 12 to 18 months before new construction/renovation currently in the pipeline is completed. There is a potential for more than 5 to 8 million sf of new office space in the East Bay alone beginning in mid-2001 and beyond. Between now and then if you need space anywhere, call me first…

Wow, the 120th issue marketing the 20th year of publication of this newsletter! It is both agony and ecstasy when I write this, as it takes an estimated 40 hours of research and writing for each issue. Sometimes, it is so hard to lock myself away from wife and child, like today when it is 80 degrees outside and my son is crying because I can’t come out and play with him. The sacrifice of intense and much-loved employment…

Want to buy the best books on office leasing or corporate real estate? Just buy them online at www.officetimes.com! (Related Articles – Books on Office Leasing/Corporate Real Estate)

In the March 3, 2000 SF Business Times in an article titled “All work and no play not an option in Silicon Valley,” “Like so many other trends, Silicon Valley is leading the way in office design. Many startup companies have decided the workplace should be a fun place, especially if you’re spending 80-plus hours a week there. Executives at companies with amenities such as game rooms seem to agree that making employees comfortable and happy at work can lead to higher productivity and profits. Take marketing firm Orrell Communications in Campbell. President and Creative Director Lisa Orrell said her firm’s pool table, brightly colored walls and adult-sized bean bag chairs do more than brighten up the space. They get the creative juices flowing. Excite At Home employees travel from the third floor to the first floor of their Redwood City offices via a red corkscrew slide. The company also has a game room, full arcade, Ping-Pong tables and a pool table…other firms regularly host catered barbecues, have the ice cream man make cubicle deliveries, stock the lunchroom with food and drinks so the employees don’t have to go off-site, have on-site fitness centers, sand volleyball courts, basketball, gourmet coffee carts at no charge to the employees; and I was just involved in a transaction where the e-frenzied employees had a couch lounge in case you needed to do consecutive all-nighters. Cisco Systems offers break rooms with free sodas, popcorn and a place to drop off laundry, ATM machines on campus, on-site car washing and flex-time. PeopleSoft’s on-site Café Diablo offers a wide range of healthy foods including Japanese, Indian, Chinese and Italian. Breakfasts and prepared-to-order lunches are served daily. Its Club One exercise facility is run by a staff of three, including a personal trainer. Some companies run their cafeteria for dinner to accommodate late-night workers.

In certain parts of the San Francisco Bay Area, office building sales are selling for more than comparable buildings in midtown Manhattan. A recent 135,000 sf San Mateo complex sold for $365/sf, while a comparable building on Fifth Ave in Manhattan recently sold for $345/sf. I’m not sure this is a good thing.

Save the date: On June 8, all-day at Oracles Redwood Shores conference center NACORE is sponsoring a HIGH-TECH/TELECOM Conference jam-packed with panel speakers and answers to critical questions you’ve been seeking. Call me for information, or register at www.officetimes.com (Calendar-June 8). Also, if want to join NACORE or get program info e-mailed to you, I’m vice president of membership so just send me an e-mail.

San Francisco Chronicle 3/13/2000, “Over the past year, many prominent brick-and mortar companies from across the nation have established their dot-com businesses here. Like Kmart, they often select the Bay Area as their Internet address rather than simply operating from their corporate headquarters. The reasons are diverse, including the availability of quality workers and the proximity to venture capital. Some executives say being too near the parent company can stifle creativity. The proliferation of these online outposts in the Bay Area appears to contradict the theory that the Internet makes the location of an e-commerce firm irrelevant. Many out-of-state companies are so convinced that the Bay Area is the ideal base for their online businesses that they are willing to pay higher salaries and real estate costs to be here. ‘We can recruit faster and more effectively in the Bay Area than anywhere else in the world,’ said Jim Breyer, a director for WalMart.com, which recently moved from its parent company’s headquarters in Bentonville, Ark to a temporary home in Palo Alto. ‘Silicon Valley is the center of the Internet,’ Breyer said. ‘That can’t be said of Bentonville or any other place.’ According to Rashi Glazer, a marketing professor at UC Berkeley, location still matters. Glazer said that technology companies need to be surrounded by other technology companies to take advantage of what he calls the ‘water cooler phenomenon.’ Proximity allows people in an industry to informally share ideas and keep abreast of what latest innovation, he said…‘think of Silicon Valley as one big water cooler’…”

Deals and Rumors: Up in Richmond’s Marina Bay I leased zipRealty.com 45,000 sf of office space, and assisted Onyx Pharmaceuticals in its 51,000 sf laboratory lease renewal at 3031 Research Drive, also in Richmond. Over in Concord, I did an eight-year sublease of 30,000 sf for a call-center with Zomax at 2727 Systron Drive; and also in Concord MCI leased 38,000 sf and Bank of the West took 35,000 sf, both leases at 2400 Bisso Lane. In Walnut Creek at the Shadelands Business Park, I sold the International Brotherhood of Electrical Workers almost three acres in an office park for a possible future headquarters expansion. In downtown Walnut Creek CES Insurance is rumored to be leasing 25,000 sf at 2121 N. California Blvd. In San Ramon, PictureWorks leased 19,000 sf at S & W Plaza, and at BR3 rumors are rampant with Pac Bell Internet reportedly interested in 125,000 sf, Cisco in 100,000 sf and Irwin Home Equity in 100,000 sf. In East Dublin, SBC might be signing 144,000 sf at the Opus Emerald Point project. In Livermore, Real Time Access leased 17,000 sf in Legacy’s Livermore Tech project. Commerce One is up to 325,000 sf (it was in 40,000 sf in Walnut Creek just three months ago) at Carr America’s Pleasanton project; P-Serve Technologies is taking 10,000 sf and Elemay 18,000 sf, both at Hacienda Lakes and Comdisco might be taking 76,000 sf at Britannia VIII in Hacienda. Also in Pleasanton, All Bases Covered is taking 14,000 sf at Hacienda West, Groundswell took 60,000 sf at Lincoln’s Pleasanton Bart project, where Lucent is rumored to be taking 50,000 sf; at 5956 West Las Positas, TUT Systems signed for 89,000 sf, at 4440 Willow Road HP Agilent is talking 26,000 sf, and at 6800 Koll Center, Knowledge Track leased 13,000 sf, Bar None 18,000 sf and Vertas Software 36,000 sf, all in the same project. In Oakland Names in the News leased 15,000 sf at 1300 Clay, Salestar took 25,000 sf at 300 Lakeside Dr. SCORE! Learning signed for 30,000 sf at 66 Jack London Square, Scientific Learning is relocating out of Berkley to 60,000 sf at the Rotunda Building and AskJeeves took 60,000 sf at 1111 Broadway. Intraware leased 80,000 sf at Watergate Towers in Emeryville. In Alameda’s Harbor Bay Parkway, ReSource Phonenix.com leased 67,000 sf. Down the Peninsula, all at Pacific Shores Center in Redwood City, ExciteAtHome leased 250,000 sf, Phone.com 280,000 sf, Informatica 286,000 sf and Broadvision 406,000 sf. In San Francisco, five web incubators might be seeking space, including Xcelerator for 15,000 sf, Digital Ventures for 50,000 sf, a non-profit incubator for 100,000 sf, ABE Technologies for 350,000 sf, and eDevelopments.com for 500,000 sf. Also in the City, Twelve Entrepreneuring leased 60,000 sf at 989 Market St., Cnet Networks is considering a 280,000 sf lease at 235 Second St., TIS Worldwide leased 15,000 sf at 525 Market St., DoubleClick might be taking 250,000 sf on Brannon St., and a huge lease valued at $650 million with Chase H + Q leasing 665,000 sf was done at Mission @ First St., scheduled for early 2002 completion.

If any of you want an easy way to track when the next luncheon, dinner or educational program is for NACORE, SIOR, NAIOP, BOMA and all the rest of the Bay Area commercial real estate organizations, just go to the homepage, left side, of www.officetimes.com and click on the master calendar with details and on-line registration links.

Patrica Wen, writing in the Boston Globe (reprinted SF Chronicle 3/10/00), titles her article “Drab Cubicles Can Block Workers’ Creativity Productivity”. “The drab cubicle, according to new research, is stifling the creativity and memory of workers. In what perhaps is a no-brainer to the Dilberts of today, psychologists and designers say the solution is new work spaces that will spark people’s mental/wiring. In this new field called ‘cognitive ergonomics’, researchers are talking about everything from transparent cubicle walls to bendable desk accessories. They’re questioning the value of office plants and reassessing the corporate contempt for the messy desk.”

In the SF Chronicle 3/22/00, in an article titled “For High Tech Builders, Intangibles Outweigh Bay Area’s High Costs,” examples are given why contract manufacturing for the high-tech industry continues to grow its operations in the Bay Area when it could build elsewhere at a much lower cost. “One factor, Wang (Solectron CFO Susan Wang) said, is that the Bay Area offers an ‘unparallel concentration of talent’ even though the companies recruit engineers as well as laborers in every country where it operates.” The author, Henry Norr, goes on to say “But the most important advantage of this area, most observers agree, is that so many high-tech companies, wherever their headquarters are, develop their products here. Traditionally, most companies like to keep at least initial production close to their design centers, so their engineers can quickly diagnose and correct any problems that surface as production gets underway.” And as Beth Walters, VP at Jabil Circuit said finally persuaded Jabil to increase its investment in this area was the steady stream of high-tech startups here. “If you’re not here you don’t find out about them and they don’t find out about you,” she said. “That’s why we finally decided we had to be here.”

This is also true for e-commerce. In my last issue I mentioned an Internet company, ELance.com which packed up its entire 20 employee operation, families and all, and moved from New Jersey to Sunnyvale this past December. On Feb. 17 there was an announcement in the business section that ELance.com just raised $12 million from Kleiner, Perkins, Caufield and Byers…

According to Plants Sites & Parks Feb/Mar 2000 citing a report by Johnson Controls, “It now typically costs $2,752 a year to provide an office-based employee with a place to work. This figure is the annual facility management cost per employee, and it includes property operation such as maintenance and utilities plus office services such as mail room and internal moves. It does not include rent, taxes, insurance, IT or other capital investments.” If you figure at $2.50/sf net of utilities (double this for SF, Peninsula) and 180 sf per employee – add another $5,400/yr for just rent. Throw in another $2,500/yr for IT (probably too low) and it costs $10,652 just to house the employee.

Well, it had to happen…Ross Perot Jr. put 80,000 sf of industrial space in Fort Worth on eBay…$1.46 million for a minimum five-year lease. If any of you are thinking of bidding for office space, call me – we have a consulting arm to help advise you in strategy and evaluation…

Get ready for elevator advertising…Captivate Network as well as Otis are rolling out elevator screens with news and info updated every 20 minutes, with of course ads and customized building messages (I can think of a few…don’t forget to pay your operating passthroughs on time…did you hug your broker for helping you get in this building?…look to the folks on your right and left, one of these two wants your suite for expansion…)

San Francisco’s dot.com industry employs more than 40,000, including an estimated 1,000 smaller start-ups employing each 20 employees or less.

BioTech in California: biomedical employers created 212,000 jobs in the state in 1998. The Bay Area remains the largest biomedical center in the state and in the nation, with 747 companies and research facilities providing 85,000 jobs in the region.

A fascinating article titled “21^st Century Office Building Infrastructure” in the Feb. 2000 issue of Building Operating Management. Here are a few info nuggets: “Data centers holding customer and transaction information need redundant power and HVAC systems to stay online during a failure of the power grid or of central building equipment. In short, the mechanical and electrical systems have never been more closely tied to corporate business profits…Today, many office buildings are built with only sufficient power outlets for use of the space on the first day of occupancy. Each additional item of equipment requires installation of a new dedicated home-run circuit, incuring cost, disruption and lost time. Dedicated UPS systems are purchased and installed on an as-needed basis and, with no plans for maintenance, the units are forgotten until they fail to operate when required…For the last decade, two types of copper - Category 3 for voice and Category 5 for data - have defined communications wiring. Two new categories will be added to the communications standards. Category 5e (5 enhanced) will provide additional signal and potential within the same 100 mHz ceiling. Category 6 will at least double the available band width…the difference between Category 5 and Category 6 is probably five to seven years.”

SiteStuff.com helps building owners and property managers to electronically connect them to providers of goods and services such as lightbulbs, furniture and restroom supplies to improve cash flow and reduce costs.

Those of you who know me understand I have a passion for the latest high-tech gadgets, usually overpaying to be the first on the block with a car phone (23 years ago, cost of $5,000 and was the size of a suitcase mounted in the trunk); the IBM PC at $3,500, tiny black and white monitor, no hard drive; my internet site www.officetimes.com, one of the first commercial real estate sites in the country and now in its fifth year. I just traded in my old Palm II for an internet-connected Palm VII. What does all this have to do with you, the corporate real estate executive? Residential real estate seems to be 2 to 5 years ahead of commercial in taking advantage of tech, and there are now several programs out which allow downloading of photos (www.dreamhs.com), multiple listing services (www.pocketrealestate.com) sent right to your palm, and a new wireless tool that allows consumers who see an eHome.com listing while driving around to get detailed property information through their Palm Pilots (www.ehome.com). Fast-forward 2 to 3 years to envision the possibilities with commercial real estate, both leasing and sales…if my cutting-edge clients want information sent to their Palm Pilots, I’d better figure out how to stay ahead of the curve…

The fastest-growing telephone area code in the nation is the East Bay Tri-Valley region (SR Valley Herald 2/9/00), so get ready for another area code split. Just about every family I know has 3 to 6 lines per household to accommodate phone, fax and Internet (let alone teenagers), in addition to an average of two cell phones per household.

San Francisco has a “Proposition M” 14-year old building cap initiative, and projects up for approval in total now far exceed allowable construction. There are great efforts to get multi-media projects exempted, especially when it involves conversion of existing industrial to office/r & d. If the City totally runs out of long-term space potential (with a current vacancy of 1 percent) what will happen?

According to Kirsten Grimsley as reported in the SF Chronicle 2/18/2000 on telecommuting: “Telecommuting is enormously popular among time-strapped workers who want to trade their commute for more leisure time. An estimated 20 million employees in the United States are now working from home, and these number are likely to grow. In a study released last week by the John J. Heldrich Center for Workforce Development at Rutgers University, 41 percent of the workers surveyed said they believe they could perform part of their work as telecommuters and would like to do so. Only 9 percent are doing it now.” Don’t forget, the best website in the country with direct links to every telecommuting site is www.officetimes.com (just go to Links and Telecommute/Alternative Office).

According to Plants Sites and Parks magazine, California is the hottest state in the country for corporate building projects, followed by Michigan, Ohio, Tennessee and Texas.

A few weeks I was rollerblading with my 2 ¾ year old son Jordan asleep in the jogger. Cruising down the Iron Horse Trail, a 17-mile paved bike/skate trail going from Walnut Creek down to Pleasanton, mid-March, 75 degrees, and as I passed the new Andronico’s, an awesome gourmet grocery store five minutes from home, I thought – yes, we have a lot more traffic, but almost everybody I know is fully-employed (the rest e-commed and retired young), and yes, there is a lot more housing and at certain times, more congestion, but on the other hand we have scores of new fabulous restaurants close by, within 10 minutes of home are three terrific cooking schools, within a 30-minute drive without crossing one toll-bridge are more than 200 movie screens, and for most of us here in Northern California all things considered, we are very, very blessed. I’m sure most of you, wherever you reside in the country., feel similarly about your neighborhoods, and in today’s 24 by 7 ultra-stress work environment taking time to smell the roses takes on special significance…

After upgrading my home computer to the Dell 800, I gave our almost three-year old son Jordan my three-year old 133 mHz. The little guy knows how to put in his learning CD’s, and has finally mastered the mouse to the point where he can drill a tiny screw (on-screen), and is beginning to explore different learning games on his own (daddy, look at this!). When I remarked to my wife Lisa, that some experts predict near-extinction by 2018 of much of our printed material, looking at our children’s early familiarity with technology in so many formats is kinda scary. As tech-savvy as I am, not growing up with a talking Buzz Lightyear, using a real potato in my Mr. Potato Head and not today’s electronic version, and having played Risk and Monopoly instead of Game-Boy pokemon may handicap my generation as the Jordans of tomorrow light-speed us into the future. By the way, Jordan is doing awesome and photos of him skiing and riding horses are on-line at www.officetimes.com - (current newsletter: just double-click his name). We are getting ready for our first Disneyland roadtrip, so I’ll let you know next issue how this went!