An interesting symbolic example of why the San Francisco Bay Area has been able to retain, as well as, attract new business development was the recent decision by Knight Ridder to move its corporate headquarters from Miami to Silicon Valley, in spite of the comparatively high cost of office space, housing and employees. Executives with Knight Ridder felt "out of the loop" in Miami and that close proximity to the Bay Area forces driving and shaping the Internet would allow Knight Ridder to take advantage of technological developments here.

A few interesting quotes from an article entitled ‘More CEOs winding up in the land of the cubicle’ published in the San Francisco Chronicle 5/31/98. "Paul O’Neill, CEO of Aluminum Co. of America, has traded in his cavernous wood-paneled office and now works in a cubicle. So does Intel CEO, Andy Grove. And so do more than 60 percent of all white-collar employees, as companies break down walls and dismantle executive suites ... At Alcoa, executive vice president Ron Hoffman says communication among the very top executives has increased five-fold since the group moved into cubicles in 1994 ... In the San Francisco Chronicle 5/22/98, entitled "CEOs Come Into the Cubicle ... while more and more executives are giving up their closed doors, they remain a tiny minority. Only 5 percent of upper management work in open-plan offices, up from 3 percent in 1994, according to the International Facility Management Association." Two sides to the same executive/cubicle issue, but the trend seems to be away from executive offices and more towards open plan, modular furniture, team offices and a host of trend-office concepts (hot desk, cockpit office, huddle/canteen rooms, etc.).

Reported in Today’s Facility Manager, February 1998, "... according to the most recent Steelcase Workplace Index, (a semi-annual survey that gauges our workplace trends), the majority of today’s workers--34 percent, in fact, prefer the home office as their top place to work. When office workers were asked where they would like to work, only 17 percent chose the corner office ..." According to the survey, items that people would like to change about their work area--many of which relate to comfort and control over their space--include: more storage (27%); better technology support (18%); more privacy (18%); more comfortable chair (17%); better lighting (14%); more tackable space (11%); and more space for impromptu meetings (10%).

One of my tenant representation broker friends recently compared the landlord requesting the tenant to renew an existing lease without representation to if the police were allowed to advise you not to use an attorney because they would better represent you ... Of course, we passed laws against the latter example.

A recent study by The Kensington Technology Group on telecommuting reported the following: only about 6 percent of telecommuters in the study said their companies had actually inspected or looked at photographs of their telecommuting workspace; 63 percent said their companies hadn’t trained them on how to make telecommuting more productive; 59 percent hadn’t received any ergonomic information to minimize injury; most people reported increased productivity of 30 percent outside the office."

I recently added up a handful of the larger speculative East Bay office projects either under construction or fairly certain to at least begin construction within the next 18 months, and came up with about 7 million square feet with the capacity to house more than 32,000 new employees. Sure, some will be phased and take a number of years to complete, but I didn’t even include more than 3 million square feet of owner/user projects which will house an additional 15,000 employees. Traffic - ugh; jobs - hooray!

Deals and Rumors: Lots to report in San Francisco ... IKON Office Solutions leased 31,000 sf at 225 Bush St., along with Pruess Walker Shanagher which took 22,000 sf; PML sublet 13,000 sf and State Street Bank & Trust leased 12,000 sf, both occurring at One Market Plaza; Montgomery Securities expanded by 60,000 sf at 655 Montgomery, Cooley Godward took 27,000 sf at One Maritime, Sega leased 200,000 sf at 650 Townsend; Dolby Lab bought the 135,000 sf 999 Brannan St. building. Aetna Insurance leased 16,000 sf and Matkins Leck Gamble & Mallory leased 16,000 sf, both at 333 Bush St.; Internet Industry Publishing took 15,000 sf at 315 Pacific Ave., Advent Software signed up for 32,000 sf at 35 Stanford St., CarrAmerica may be buying Golden Gateway Commons, a 272,000 sf project for $70 million, and Arthur Andersen signed a 137,000 sf lease at 101 Second St. In Walnut Creek, Bank of America leased 10,000 sf at 2033 N. Main, I sold a 10,000 sf office building to Shawn Rajabi & Associates, and I represented EDS for its new 23,000 sf lease at 2125 Oak Grove Road. In Pleasanton, Documentum is rumored to be taking 150,000 sf at Sycamore Plaza, Safeway is expanding its headquarters at Stoneridge by 210,000 sf, and the buyer has been selected for the 28-acre Wells Fargo land site, a per square foot land price which might exceed $30/sf. In Martinez, Contra Costa County is leasing most of the 100,000 sf Summitt Centre with a $12.2 million option to buy, and in Concord, Bank of America leased 13,000 sf and Fidelity Title took 12,000 sf, both at 2300 Clayton, while Pacific Dental might be taking 18,000 sf and Stewart Title, 19,000 sf, both at 1390 Willow Pass Road. In Oakland, Kaiser Permanente leased 110,000 sf at 2101 Webster, the UC Office of the Treasurer leased 18,000 sf and Deloitte & Touche expanded by 13,000 sf, the latter two leases at 1111 Broadway, and the 520,000 sf Ordway Building sold to Prentiss Property Trust for $70 million. On the Peninsula, Depomed took 14,000 sf of office/R&D at 363 Lakeside Drive in Foster City, PE Applied BioSystems leased 11,000 sf with a 200,000 sf option also in Foster City, and Tishman/Speyer purchased 14 acres in Redwood Shores from Electronic Arts for $78/sf. They plan a 400,000 sf spec office project with projected rents at $3/sf NNN. Microsoft is rumored to be looking to build 400,000 sf at Mountain View’s Shoreline Drive. A lot more office transactions in the works which I’ll report on in August.

I’ve visited some of the highest tech companies in the world and am still amazed at how many low-tech security badges are still used and how many reception guards neglect to track whether or not the badges are turned in. Why even have the ritual if it’s not enforced? At the very least, spot check security to make sure they are doing what you think they are doing and use security badges which expire over time or are numbered and accountable ...

Reported in Today’s Facility Manager, May 1998, "Nothing else is perhaps a truer gauge of effective facility utilization than space planning. It can mean the difference between a facility that simply houses work and one that encourages it.

New workplace phrase "slipseating" which occurs when two shifts of workers share the same workstation.

Also, in Buildings INTERIORS May 1998, "If you take a person out of 100 square feet and put him or her into 75 square feet without regard to the work he or she is doing , it’s simply a real estate exercise." Neil Frankel, president of International Interior Design Association, Chicago says, "You’ve saved 25 percent more space. But if, in fact, the person is less productive, the bottom line has not been altered at all. On the other hand, if you really understand the space required for the work that’s being done, you can possibly reduce that square footage even more, and increase productivity."

I noticed that one of the new office towers preparing to break ground in San Francisco will have 209,000 sf with the largest floor plates at 15,000 sf. This would suggest executive and small professional firm offices, which would make sense based upon the $50-70/sf rents I keep hearing. In the Tri-Valley suburbs, there are a number of projects already under construction with 25-40,000 sf floorplates and rents at half the price of San Francisco. So the long-term tend of what type of function goes where around the Bay Area is beginning to take focus ... Boutique and small professional firms in the high-rent district, larger corporate operations and others in the "not as high" rent district.

Boston Properties Chairman Mortimer Zuckerman who paid $1.22 billion for the 4 million square foot Embarcadero Center was quoted last month as follows: "Over the next several years as leases renew, the rents should provide dramatic increases in income." To show how quickly property values have increased, "The value of this property is probably 40 percent above where it would have been 1½ or 2 years ago," said David Twardock of The Prudential Insurance, the seller of Embarcadero Center. What a deal at only $300/sf! As another real estate executive recently put it, we are now in the era of "frothy pricing" of investment property.

Interested in corporate real estate facility software with direct links to their websites? www.weiloffice.com. Can’t find a back issue of this newsletter? www.weiloffice.com Also, check out the latest article entitled, "From Cows to Cubicles - A History of the Tri-Valley Office Market. Need a quick list of East Bay golf courses, hotels and extended stays, or direct web links to Bay Area chambers of commerce? www.weiloffice.com

Where, oh where will future Bay Area employees live? According to The San Francisco Chronicle, 5/21/98, "The Essential Problem: the jobs are in Santa Clara County but affordable homes are nearly 100 miles away in the Central Valley. For every mile further out Interstates 680 and 580, the median price of a home drops $1,000, according to a San Joaquin County Study. By 2020, the population of the Tracy area is expected to more than triple to 182,600."

The following quote from Buildings INTERIORS, May 1998 is a profound (at least to me) reflection on the relationship of the physical structure and layout as it relates to operational cost and employee productivity: "Jay Shanavarum, a doctoral candidate at Carnegie Mellon University, Philadelphia, who has been studying the issues of productivity from several angles as part of work being conducted at the University’s Center for Building Performance and Diagnostics, statistically underscores the reality of the situation: ‘Of the total costs over the life cycle of a building, the initial investment will represent only two to three percent of its total costs, and operating expenses will represent six to seven percent. The costs associated to the employees working within it, however, will represent 80 to 90 percent of all costs. Therefore, anything that changes the productivity of that 90 percent will have a much more significant payback to the corporation."

One of life’s little highlights — our son Jordan just turned one last week, and whenever possible, I read nursery books to him before he goes to sleep. What a simple event to look forward to, but a small, incredible, oasis of peace and quiet in the midst of today’s super-hectic real estate rollercoaster. Those who haven’t been there will probably think I’m crazy, but what could be further from e-mail and cell phones than reading Winnie the Pooh to a one-year old ...

Sincerely,

Jeffrey S. Weil, MCRS.h, CCIM, SIOR
Senior Vice President

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