In National Real Estate Investor (www.nreionline.com) Feb. 2000, “A recent BOMA/ULI survey revealed that playing the telecom card wisely is an important factor in drawing and maintaining tenants. The survey asked tenants to rank the top intelligent building features. Number one on the list was built-in wiring for Internet access followed closely by wiring for high-speed networks. More than 70 percent of the tenants surveyed said that they would be willing to pay extra for state-of-the art telecom technology.”

According to SF Business Times, May 5, 2000, the East Bay added 33,900 jobs in 1999, surpassing the 30,800 number of new jobs in San Francisco and the 12,5000 new jobs in San Jose added during the same time.

Rick Frank, former chief of Disney Studios, compared LA and San Francisco cultures in WIRED May 2000 “Most of the people in San Francisco and the Valley are young and willing to work for very low pay in exchange for very high stock, and in LA they want hard cash, stock and bonuses. Everyone there wants more of a guarantee. Things move quickly in Hollywood but they move even quicker up north. San Francisco is even faster-paced than New York.”

In a recent Tri-Valley Herald article about a “building boom” conference held on the Peninsula last month, there were complaints from tenants of soaring rents, hefty rental deposits and demands for stock options from landlords that “start to get predatory and eat up the cash reserves of a corporation,” according to Inktomi CFO, Jerry Kennelly. “Conference speakers seemed to sense a slight cooling of the market that has driven rents on prime buildings to $7.25 per square foot monthly from a high of $3.61 in just one year. But the real estate executives still forecast rising rents. That’s not hard to understand, given some of the statistics unveiled at Friday’s conference: There are tenants seeking 2.5 million square feet of space in the County, but can’t find anything; the vacancy rate county-wide stands at 0.3 percent; of the 1.8 million square feet of space coming on stream this year 100 percent is pre-leased.”

www.officetimes.com has a wealth of information for the corporate real estate professional from articles on subleasing office space, the latest CRE software programs, rental rate ranges and housing prices for the Bay Area, on-line ordering of books on office leasing including Prof. O’Mara’s new title “Strategy and Place: managing Corporate Real Estate and Facilities for Competitive Advantage.” Want tips on setting up a home office or what to watch out for in telecommuting? It’s all at www.officetimes.com!

The office space question of the year…is the market about to peak, then begin dropping? Will the recent Nasdaq gyrations and the dramatic cutback in venture capitalist funding of new dotcoms slow down new start-ups, and put financial earning pressure on existing dotcoms. Will this force an industry-wide consolidation? Do we really need 240 on-line hairbrush sites? Does the recent Bay Area housing drop of 25 percent portend future negative news for the Bay Area office market? Will ridiculous housing prices and labor shortage force companies to seriously consider a relocation to Wichita, Kansas? Will we once again face an office overbuilding disaster if new supply comes onto the market at the same time the market consolidates?

Here is my opinion, for what it’s worth, on all the above questions. First, for the most part the ownership of our office and flex market is now comprised of very large, very sound, and in general, conservatively leveraged national investors including REITS, insurance companies and institutional-backed investors. I don’t think we will see a repeat of the 1980s which was fueled by phantom tax write-offs, high-leverage and a combination of an overabundance of bank and S&L money and an under-abundance of credit criteria. Regarding the wild herd of dot-commers seeking great amounts of office space, the Nasdaq has actually brought some degree of sanity back into the market. We still have almost no available office space, and at times still have multiple tenants fighting over the same block of space but during the past 45 days, at least to me, the market seems to have toned down slightly. To answer the question of companies moving to other states, this will continue but not with your dotcom, finance, software companies, etc., that rely on the particular quality and nuance of the Bay Area labor pool. Rent is still at the lower end of the cost-of-business factor scale, even at its current crazy heights-it would be like trying to fish in Death Valley. There might be a few ponds, but nothing like fishing in the midst of hordes of schools of fish like we have here in Northern California.

Housing prices? Yes, they are too high, and I’m already seeing dear friends of mine leave the state solely due to the high cost of housing, but we have more than 10,000 homes under construction or planned in Danville, another 12,000 homes slated for Livermore, and overall the Bay Area will provide housing for the 1+ million new folks expected to come to his area during the next several decades. I think the housing price frenzy will slow down. Office rental rates…some say $110/square foot per annum for Downtown San Francisco is too high, and I say a three karat perfect diamond costs too much but as long as someone is prepared to pay the piper the rates will stay up. Downtown Oakland rents have doubled during the past four months, and there is no reason Walnut Creek and Pleasanton should stay as low as they currently are. So, in summary: a continued strong office market, low vacancy, space shortages, but an office market slightly saner overall than three months ago. At some point, possible blocks of space available through dotcom consolidation, but I don’t see this anytime in the near future.

Deals and Rumors: During the past 60 days, more than 1,418,000 sf of new office leases were reported for San Francisco! Outcome.com leased 15,000 sf at 190 Ninth St., Sony took 30,000 sf at the same location, Headland Digital Media is leasing 47,000 sf at 575 Market St., CMGI is taking 100,000 sf; Fresher Information Corp is taking 12,000 sf and Proxicom, Inc. took 81,000 sf at the same project. Hambrecht & Co. took 62,000 sf at the Presidio; EGroups leased 125,000 sf at 555 Market Street; Paul, Hastings, Janofsky & Walker may be taking 70,000 sf at 2nd & Stevenson where Digital Island took 160,000 sf and Fritz Co. leased 60,000 sf; Addis Group leased 10,000 sf at 117 Greenwich St., Market-Touch took 38,000 sf at 303 2nd Street, Wilson Sonsini Goodrich & Rosati, is expanding into 40,000 sf at One Market Plaza; Genesys Telecommunications has committed to 285,000 sf at Mission Bay, Indus International is leasing 108,000 sf at 60 Spear St., Microsoft took 45,000 sf and Salesforce.com 60,000 sf, both at Landmark on Market St., Omnisky is taking 132,000 sf at One Market St., Groundswell has chosen 333 Grant St. for 50,000 sf, and Evite.com is expanding by 20,000 sf near the 350 Florida St. operation. Going South, Digidesign will be moving into 128,000 sf at Pacific Plaza in Daly City and Keynote System is looking for 80 to 100,000 sf on the Peninsula. In East Palo Alto, Brobeck, Phleger & Harrison leased 190,000 sf at University Circle, and at 1240 Hamilton Court in Menlo Park MC1 took 58,000 sf. Cisco is moving into 577,000 sf in Milpitas, with the total project at 1 million square feet. Shifting to Pleasanton, PeopleSoft leased 114,000 at the Lincoln Hacienda Project, and Groundswell leased 52,000 sf in the same project, ObjectStream expanded by 30,000 sf at Hacienda West, Visionaire took 14,000 sf at 5673 Gibraltar, and Adicom is moving from Hayward to 41,000 sf at 5724 West Las Positas Blvd. In Dublin, Simpson Manufacturing took 35,000 sf in the new Koll Project, and in Livermore Greenlight leased 38,000 sf in North Canyon, with the big news being the announcement by KLA-Tencor of a 720,000 sf expansion campus on the Livermore Shea property. Up in Walnut Creek Anderson Consulting leased 19,000 sf at Treat Towers. In Emeryville, SendMail is taking 40,000 sf at Hollis Business Center and Northpoint Communications expanded by another 100,000 sf at EmeryStation. In Downtown Oakland; CH2M Hill will be relocating to 62,000 sf at 155 Grand Ave., DoubleTwist took 63,000 sf at 20th & Broadway in the I Magnin Building, Versata leased 100,000 sf and Nightfire Software 50,000 sf, both at 300 Lakeside Drive in the Kaiser Center.

If any of your colleagues, staff or associates would like to receive officetimes.com at no charge, please e-mail their name and e-address to jweil@colliersparrish.com. We are currently sending out to thousands of corporate real estate professionals, but I would love to get that number up to the tens of thousands!

Electronic signatures to make online transactions legally binding may be on the way, with Congress currently working on federal guidelines to regulate Internet transactions. Already most of my lease transactions are negotiated by e-mailing red-lined versions back and forth…

Entrepreneur May 2000 had an interesting article on today’s office space…3,000 pounds of sand in their office to create an indoor beach complete with banana plants and tiki torches-a good complement to walls emblazoned with green grass and blue skies, and a central board room turned game room. Why the outdoor motif? When you and your 60-plus employees often work 70-plus-hour weeks, the office better be fun and convenient–flyswat (the company name) buys dinner four nights a week, has a fully stocked kitchen, futons for sleepers, laundry facilities and a shower.” Not like my dad’s old office…

In Today’s Facility Manager, April 2000, in an article titled, “Computer Aided Maintenance,” using a PDA like a Palm Pilot, Helio or Handspring Visor, along with e-mail client software like Outlook Express and server based e-mail collaborating software allows the facility manager to master schedule all planned maintenance, have readily available vendor contact information, task “to do” lists, notes, journals and more. The article was full of tips, and more information on PDA CAM implementation is available through the author, James C. Elledge, site planner for Harris Design Associates at james_elledge@hotmail.com

In an article titled “Keeping Workers Satisfied,” SF Chronicle 5/12/2000, “Dilbert, the ultimate cubicle dweller, wouldn’t fit in at SAS Institute. Everyone with a desk job at the North Carolina software maker gets a private office and whole lot more. Dotted about the Company’s sylvan 250 acre campus just west of Raleigh are gleaming gyms for convenient workouts, atriumed cafeterias in which employees enjoy low-cost lunches with live piano accompaniment, an on-site child care center, and even a primary care medical facility. Annual turnover at SAS is a paltry 4 percent, compared with an average that ranges up to 25 percent at some Silicon Valley rivals.”

As reported in the SF Chronicle, “California’s population grew by 571,000 to 34.3 million last year. Half of the 10 cities with the highest growth rate in 1999 are in the Bay Area: Brisbane, Brentwood, Cupertino, Dublin and Rio Vista. It’s the third year California has added more than 500.000 new residents. There will be more than 40 million Californians by 2011. Other state projections show the population doubling from 29.8 million in the 1990 U.S. Census to 58.7 million by 2040.

Bay Area housing prices slowdown: As reported in a very recent SF Chronicle article, Susan Peterson, a broker with Pacific Union in San Francisco, says the market is not heading south, it’s just “leveling off.” Betty Weeks, a broker with Coldwell Banker on the Peninsula, has a different opinion. “I think the bubble has burst,” she says. “There are 66 houses on the market in San Mateo right now. That is nearly three times what we were seeing earlier in the year.”

My wife, Lisa and I celebrated our 10th anniversary on June 2nd. Time is not just flying by, it is going past at supersonic speed. Lisa, our three-year-old son, Jordan (born on my wife’s birthday, May 26) and I spent a week visiting Disneyland and Legoland in Southern California. Great road trip.  One of the highlights was my wife spotting a four-foot very large (confirmed by Park Security) rattlesnake in the Legoland restaurant courtyard, which made for a great video. (Come on, everyone smile next to the snake…) Those of you with kids can appreciate this next comment… we spend all our time and energy taking our son to Disneyland, finally stroll him in the gates, and what does he do but take a two hour nap before we can go on a single ride! A very nice vacation and driving down Highway 101 and back on I-5 reminded me of what a large multifaceted and extremely beautiful state we have here in California.

Sincerely, 

Jeffrey S. Weil