Signs of a slightly cooling office economy - in San Jose, the vacancy rate for office/R&D space has jumped from 1 percent to 5 percent during the past six months as new projects came on-line, and the amount of available sublease space has added to available inventory. Will this affect the Tri-Valley and Peninsula regions?

Reported in Buildings July 1998, "Washington, D.C. based Urban Land Institute (ULI) 1998 Real Estate Forecast: Mid-Year Outlook by Sector Area and Enterprise, projects that the real estate market will continue to flourish through mid-1999. For the following years through 2001, however, excessive behavior in the commercial real estate industry - including overbuilding, tax underwriting, and overpaying will significantly reduce growth in rents, property values, and profits. According to ULI Chairman James L. Chaffin, "Excess will not be severe, barring a recession, and so a soft landing is projected. Office construction will start to meet or exceed demand in suburban markets by mid-1999, while remaining below demand in most downtown markets."

Next week I fly to the annual Nacore Symposium (International Association of Corporate Real Estate Directors), where I will be giving a presentation titled, "Harnessing The Power of The Internet For Corporate Real Estate Directors." If you’d like to see the handout including a listing of favorite corporate real estate director web sites, this will also be posted on my web page later this month at www.weiloffice.com.

Great article in Buildings July 1998, entitled "No Time To Change," which deals with intense churn, and how real estate can keep up with constant space usage change. "You, the facilities professional, are in the middle, soothing the anxieties of employees while addressing the demands of their bosses - customizing per person while standardizing for the group." Another good view- point, "A company’s philosophy about churn will set the pace for a facilities manager’s job. There are different theories about this. One is you move everybody and everything. The other is you move people, not stuff like wiring and walls," says Alan Whitson, CEO of facilities management consultant, B. Alan Whitson Company. "That philosophy can often dictate whether a layout is filled with private offices, modular workstations, or both." The article goes on to describe a new facility for 3M, "All workspaces will be configured in an open design and all 3M employees in the facility, from the top brass on down, will work in them. Designs are standardized - one for director - level employees and another for everyone else. Team spaces will be equipped with computer outlets, phones, whiteboards, paper and other items necessary for working in groups or talking privately. When teams change, employees can get up and move to a space not unlike their former one."

A few recent corporate relocations from Silicon Valley to Pleasanton point to what will be a growing trend as commutes worsen. "ACCPAC left Silicon Valley to take advantage of the highly-educated labor force in the Pleasanton/San Ramon area, allow employees to avoid nightmare commutes, and possibly expand its offices," Wysocki (ACCPAC CEO/President) said. Cadence Design Systems also opened a satellite office in Pleasanton last month. "This is a perk," said John Bruno, vice president of real estate and the workplace at Cadence. "It’s a touchdown space. We want to provide employees with a fully-functioning office so they can be productive and still be close to home." About 2000 of Cadence’s 1,800 Bay Area employees live in or near the Tri-Valley, whose communities include Dublin, Livermore, Pleasanton and San Ramon. Cadence equipped the facility with high-speed, high-capacity communications and data lines. "We can provide them with a seamless infrastructure," Bruno said. "Whether they are in San Jose or in Pleasanton, someone calling them or e-mailing them won’t know where they are."

I’ve added new guest articles to my web page at www.weiloffice.com, including "How To Set Up A Home Office," by Mark Dutka, one of the Bay Area’s leading in-home office furniture consultants. He provides checklists to save time and money to prevent costly mistakes and increase productivity! It’s easy to download and it’s free. Also, check-out "Cabling 2000" by Rich Gucinski of T&R Communicators, one of Northern California’s most successful high-tech telecommunications design and installation companies. If you ever wanted definitions and details on "Enhanced Category 5, Bandwidth/Speed Fiber, Zone Wiring etc." just go to www.weiloffice.com and go into the guest article section.

Think your commute is bad now? According to the Contra Costa Times September 11, 1998, "Contra Costa will add 31 percent more vehicles by 2020, from about 656,000 this year to 859,900. Alameda County will gain about 26 percent, from 875,300 to nearly 1.1 million ... vehicles owned in the 9-county region will go from the current 4.4 million to 5.5 million - a 25 percent increase."

Deals and Rumors: Let’s start with San Francisco for a change ... The major CPA firms are practicing the advance planning they preach to clients ... Price Waterhouse Coopers signed 140,000 sf at 199 Fremont Street, which will be completed in spring 2000. Arthur Andersen also preleased a new office development, stepping up for 125,000 sf at 101 Second St. for a January 2000 occupancy. University Games penned a 15,000 sf lease at 2030 Harrison St.; Publics/Bloom committed to 28,000 sf at 945 Battery St.; Pyramed Imaging leased 14,000 sf at 540 Howard St.; California State Automobile Association signed a 60,000 sf lease at 651 Brannan St.; Laughlin Falbo Levy & Moresi is relocating to 25,000 sf at 39 Drumm St.; Esherick Hamsey Dodge & Davis inked 18,000 sf at 18th and Folsom St.; Leagus Delaney took 14,000 sf at 840 Battery St., SMP/SHP is leasing 25,000 sf at 225 Bush St.; and Qorris Media Group will move to 27,000 sf at 201 Third St. Does that leave any lease transactions for the rest of the Bay Area? You bet ... Over in Walnut Creek, I helped AirTouch Communications lease 16,000 sf at 1350 Treat Blvd., and in Pittsburg, GWF Power leased 13,000 sf at 4300 Railroad Rd. In Dublin, Finet is rumored to be taking 25,000 sf at Creekside Business Park, next door to where E-Loan will be leasing 20,000 sf with expansion to 40,000 sf in the same project. In Pleasanton, Transdyne is rumored to be doubling/tripling from 10,000 sf to back-fill the office space Documentum will be vacating next year when it moves to its 186,000 sf new headquarter space. Documentum has leased 12,000 sf at 7031 Koll Center Parkway to assist with interim space needs. Sprint might be expanding by 12,000 sf at 4683 Chabot Drive. Also in Pleasanton, Kelly Clark has leased the 34,000 sf office building NCR just sold at 6870 Koll Center Parkway. In Hayward, Alameda County is rumored to be looking at leasing 140,000 sf at the former Hayward City Center on Foothill Blvd. Up in Marin, Autodesk leased 25,000 sf at 1 McInnis Parkway; Prototype took 20,000 sf and HRH Insurance Services leased 12,000 sf, both transactions at Novator’s Rowland Plaza. Over in Mill Valley, General Steamship Corp. leased a 15,000 sf office space at Richardson Bay. In South San Francisco, Titan Pharmaceuticals leased 10,000 sf at 400 Oyster Point Blvd.; and in Burlingame, Forbes leased 23,000 sf at 500 Airport Blvd. In Redwood City, GBT Systems leased 41,000 sf and Perclose 80,000 sf, both at 800 Chesapeake. In San Mateo, Security Dynamics Technologies leased 58,000 sf at 2900 Cambell Dr.

I’ve been working with Dr. Claude Gruen of Gruen & Gruen and Associates for the upcoming ULI Conference in Texas on a survey of corporate real estate directors as to what the user industry believes is most important in a "Smart Office Building" for the year 2000 and beyond. How should future office/R&D buildings be designed to fully incorporate what is critical to end users? Issues include electrified floor, fiberoptics, digital cell antennas (interior), electrical capacity (wattage per sq.ft.), direct digital control and others. Very interesting results, especially when varying industries such as insurance, oil and gas, health care and computer are compared side by side. I plan to complete a report on this hopefully by next month.

Construction material costs have gone way up due to greatly increased demand for new buildings, with concrete and sheetrock up as much as 30 percent during the past year.

In Today’s Facility Manager, August 1998, more than half of participants in a recent survey say their organization is experiencing a space shortage. "Other survey results: 56% with space shortages are planning to move to new space or make structural changes within existing facilities; 28% are considering standardized work spaces to overcome space shortages; 24% intend to modularize offices and other work areas to address space shortages."

An idea you might pass on to your HR department, which I borrowed from Howard Shao, one of the founders of Documentum. Have a company audio book club where employees can checkout novels and other taped materials to reduce their commute stress.

In an article titled, "Site Factors" published in California Real Estate Journal, August 1998, about factors involved in locating an office or plant, "To be sure, core site selection factors have remained essentially the same real estate prices, taxes, incentives, logistics, transportation, labor and utilities, as well as business climate and quality of life issues at the local level." The weight given to each factor has changed too, observes Bill Luttrell, Western Region senior manager for Deloitte & Touche Fantus Consulting. "As early as the 1990s, the number one criterion for companies was real estate," says Luttrell." "That has changed to labor. So what will it be in the future? Labor will remain on top, but infrastructure or logistics will start coming to the top as well" ... This is one key reason the San Francisco area continues to fare so well in retaining major corporate presence in spite of the relatively high cost of commercial and residential real estate. Labor, infrastructure, access to the huge California market, and other non-real estate factors help keep companies from fleeing en-mass to Atlanta or New Mexico. As Bill Luttrell also says in this article, "There were several firms that left California in the early 90’s and went to our neighboring states, that are now finding out they made a mistake because of the logistics."

Need a quick access list to local city goverment offices, check out www.weiloffice.com, where I have linked in some of the key state information, U.S. Dept. of Commerce and Bureau of Transportation web sites. Most of our area city web pages are also included - hit my page, double-click on the government of choice and you are instantly on their web page.

Bits and pieces of current office/R&D sales around the Bay Area: The Martin Group has put the 1 million square foot Midpoint Technology Park in Redwood City on the market for $200 million or more. The 12 building former Ampex complex on 46 acres was originally purchased for $36 million before Martin Group did its renovation and new construction ... San Francisco’s 725,000 sf China Basin office building is reported be in escrow to DRA Advisors out of New York for $149 million. The sellers bought the property less than a year ago for $89 million ... In Concord, the 279,000 sf One Concord Centre is rumored to be in escrow to Beacon Properties ... In Dublin, Humphrey Instruments bought its 201,818 sf R&D building for $21.9 million ... The 34,000 sf NCR Building at 6870 Koll Parkway sold last month for $4.5million ... In Walnut Creek, Creekside Oaks Office Park, a 92,000 sf garden-office in downtown, just sold on a ground-lease for $9.7 million ... According to the S.F. Business Times, September 18, 1998, overall, the Bay Area has between 6 to 7 million sf of office/R&D/industrial projects currently on the market .... If you want to be the "Walnut Creek Shadelands" King (or Queen) of the world, Center Pointe (200,000 sf), Shadelands Business Park (96,000 sf), 401 Lennon lane (84,000 sf), Center Park (86,000 sf) and Shadelands West (90,000 sf) are all for sale in the $100-150/sf range and 95 to 100 percent leased to predominantly credit tenants.

A recent article in Outlook, September 1998, titled, "Current Trends in Corporate Relocation: Family Matters" cites figures from Employee Relocation Council: the cost for domestic relocation averages $45,373 per homeowner transferee and $12,962 for transferring renters. "Despite the expense and attention to detail, setting up an office in a new location is often the least of concerns to corporate relocation experts. Family attitudes regarding the move are greater proof of a relocation’s success than the new office’s square footage. A menu of options is key to relocation. Because each employee is an individual with concerns and opinions of his own, it is important not to institute a blanket relocation policy."

The future of law firm facilities: notebook computers prevalent, with docking stations and full-size monitors for in-office use; bar-coding files; scanning files is not believed practical or feasible at least for the next five years; remote file server access and e-mail retrieval from home and the road; digital copies from the copier for electronic storage. The next generation of attorneys will be much more digital which will accelerate change ... if you want to read my article "Leasing For Law Firms," it’s at www.weiloffice.com.

California’s economy, at $1 trillion, is out-ranked by only six countries in the world.

Y2K Millennium Bug elements at risk: mainframes, mini-computers, distributed PC’s, networks, telephone systems, PBXs, voicemail, printers, copies, vehicles, fire and security systems, elevators, time clocks, desktop databases, building operating systems, secured parking garages. For the latest Y2K RE web links, www.weiloffice.com.

Every October for the past 18+ years this newsletter has been published, I proudly announce how many years I have been with Grubb & Ellis Company, so here it is ... October 11 (my birthday, which unfortunately seems to come around quicker and quicker) begins my 23rd year with the same company working the same market and having just as much fun as when I first entered the business ...

Our son Jordan, just turned 16 months old and last week while I was sitting at the dinner table, I was amazed to see him standing tall enough to look over the edge of the table. Jordan has also learned how to open doors. I don’t know how we adults survived childhood, watching him climb (and fall) off couches, beds, or whatever attracts his interest. You think you’re watching him, and then, wham, how did he get there so fast? This was also the shortest summer of my life, with El Nino and having an active son to take rollerblading and bicycling (he has a trailer I either push or pull), and our newest sport, day hikes with Jordan in a backpack. We go into the Sierras or the beautiful hills surrounding Mt. Diablo, and what a treat to have your son literally next to you, hearing his coos, pointing out wildlife to him and feeling his head turn each time to see what you’re pointing at. I’m afraid if I blink too long he’ll be asking to borrow the car, but that’s what life is all about ...

Sincerely,

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

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