Companies interested in leasing, subleasing, purchasing or selling office space in the Bay Area

CORPORATE OFFICE PERSPECTIVES | DECEMBER 1, 2017

The San Francisco office market continues to sizzle, with recent announcements of Dropbox signing a reportedly 15-year lease for 736,000 square feet of office space and Facebook leasing 432,000 square feet. Meanwhile, we have more than 1 million of vacant Walnut Creek office space, 700,000 square feet vacant in Concord and another 1 million feet available in the Tri-Valley. However, tech companies (among just about every other industry sub-category) won’t come out to the burbs where full-service turn-key office space ranges from $24-50/rsf. Meanwhile, we have thousands of apartments under construction for the Millennials who don’t mind a BART ride to save a few thousand a month on their rent. In spite of all this available office space, East Bay rental rates continue to rise, and, for the most part, other than Oakland, with no new office construction in sight, we don’t see much change for 2018.

In an article “Workplace Design To Support Work,” published in Facility Executive on June 2017, “When employees have control over how and where they work, they choose space most productive for the task at hand. By creating open, inspiring areas that support collaboration as well as designing quiet spaces for concentrated work, the workplace can drive sharing of ideas, employee engagement, and a fostered sense of community.”

Robert Half recently conducted several workplace surveys of more than 300 HR managers and here are some of their conclusions. “It’s not practical for every employee to have a private or even semi-private office, but employers should pay attention to the overall workplace design to ensure there are both collaboration spaces and places for employees to quietly get work done,” McDonald, senior executive director for Robert Half, said following the release of the surveys. “The surveys also found that employees who work in open floor plans and semi-private cubicles cited the lowest productivity levels while those with private offices reported the highest levels of productivity. Additionally, 59 percent of employees working in private offices reported their workspace makes them feel relaxed. Conversely, those working in semi-private cubicles (31 percent) and those working in open floor plans (25 percent) reported the highest levels of stress.” “If companies are listening to their employees, the employees are going to think that they are investing in them and their future, and they’re more likely to stay and grow in the organization.” (The Registry, September 28, 2017)

China was the number one foreign investor in U.S. commercial properties in 2016, buying 515 assets for a total value of $16.5 billion, but this velocity has dropped almost 30% in 2017, according to National Real Estate Investor, August/September 2017.

Continued ongoing investor shift from office building investments (although well-located Class A’s still setting record prices) and retail to industrial and multi-family. For office, one big reason is the expense of turnover, which can run $50-80/rsf or more due to the high cost of second-generation tenant improvements, required LED lighting upgrade, downtime, leasing costs, and life safety.

Google, in addition to its downtown San Jose campus of 6 to 8 million square feet of future office space, is large enough to accommodate 40,000 – 50,000 employees, has just paid $318 million to purchase 380,000 square feet of office buildings from NetApp in Mountain View. (The Registry, September 13, 2017)

“Landlords are also reconsidering the lobby. In the past, lobbies were meant to be seen with art pieces and expensive-looking, but often uncomfortable furniture. Now, landlords want to make use of that space with tables and chairs, comfy places to sit, and access to stairs — an extension of the push more for collaborative spaces in the workplace.” (SF Business Times, August 17, 2017)

You would think the neighbors of the new 2-million-square-foot Apple headquarters in Sunnyvale would be overjoyed, with construction completed, Apple giving $4.8 million to the Santa Clara Water District, $500,000 to Sunnyvale to monitor potential traffic impacts, $800,000 to the Valley Transportation Authority and Caltrans to alleviate freeway traffic, construction issues and other complaints. “Apple has also invested up to $70 million in an array of local traffic measures across the South Bay.” Plus, since 2011 home values have doubled, with an average house in Birdland (the neighborhood near the Apple campus) going for almost $1.7 million today. However, there are a number of unhappy neighboring homeowners. (Bay Area News Group, August 21, 2017)

Who says we need more jobs in the San Francisco Greater Bay Area? Our transportation system is already maxed out with no real solutions in sight and it would take 20 to 30 years or more to get another Bay Bridge or BART Tube built. We don’t have plans to add new major freeway systems in Santa Clara, the Peninsula, San Francisco, Alameda or Contra Costa Counties. Recently, the newspaper reported several groups trying to figure out how to add 100,000 – 200,000 new housing units as all our new high-paying jobs have forced median-priced housing into the stratosphere ($174,000 income to afford median-priced housing). California currently has an estimated 2 million housing unit shortfall, which at the industry ratio of 2.6 persons per unit represents 5.2 million more residents. So, let’s just stop approving new office development throughout the Bay Area until housing and transportation can catch up …

Fire drill – According to the National Fire Protection Association, the likely place of origin of a fire is the same in both commercial high-rises and low-rises. The single most likely place is the kitchen with 76% in apartments, 40% in hotels, 65% in dorms, and 31% in offices.

Deals and Rumors: Huge office leases announced in San Francisco, with Dropbox leasing 736,000 sf at The Exchange on 16th, and Facebook signing for 432,000 sf at 181 Fremont St.; Revel took 24,000 sf at 303 2nd St.; Delta Dental is moving to 43,000 sf at 560 Mission St.; Fintech leased 26,000 sf at 85 2nd St.; and Corbion leased 32,000 sf at 1 Tower Place in South San Francisco. Down in Mountain View, WeWork sublet 456,000 sf at San Antonio Station. In Fremont, Tesla leased 16,000 sf at 6800 Dumbarton Circle and another 114,000 sf next door at 6900 Dumbarton Circle; Kaiser took 35,000 sf at 39350 Civic Center Drive. Up in Oakland, Marqeta may be looking for 50,000 sf, and H&L Partners bought 100 Webster St. for its new headquarters. In Alameda, Kairos Power leased 56,000 sf at 707 West Tower Ave. In Dublin, Giga-tronics signed for 24,000 sf at the Creekside Business Park. In Concord, Cerus is rumored to be looking at 70,000 sf at Airport Plaza at 1200 Concord Blvd.

Virtual Reality headsets, paired to your desktop, laptop, and your phone, may dramatically increase productivity for certain job functions. Already being utilized in record management, auto and machinery repair (the detailed schematics at a glance) and other industry niches, soon space planners, medical technicians and hundreds of other specialties will be able to use 3D and virtual screens and will rewrite how business is done. (SF Business Times, September 5, 2017)

Smart windows are being developed that can go from transparent to opaque in under a minute, dramatically lowering energy costs by reducing the heat load. Stanford University engineers developed these “smart” windows and expect prices to go down as this product moves from development to widespread commercial usage. (Stanford University, August 10, 2017)

According to National Real Estate Investor, August/September 2017, New York and Dallas are the top U.S. cities to see the most job growth from 2017 to 2019.

Sit-to-stand desks are one of the hottest new trends in office furniture, and as companies relocate or remodel their office space, they are increasingly being offered to employees, especially with the millennial employees who expect this type of office furniture. (Star Tribune, September 3, 2017)

As of June 23, 2017, Global Retail tracked 5,321 retail closings, a 218% increase over 2016. In one recent survey, 22% think it is a good time to purchase retail real estate, 37% think it is time to sell and 41% think it is best to just hold on to it. (National Real Estate Investor, August 18, 2017)

There are 8,000 housing units under construction in San Francisco, San Mateo and Marin Counties as compared to the Dallas-Forth Worth metro area where 50,000 housing units are under construction. (SF Business Times, September 12, 2017)

Smart phone access control credentials may replace keys and ID cards for a fraction of the cost. For tons more information on this, click here. (Buildings, September 1, 2017)

The risk of high-rise fire deaths in the U.S. has dropped, and an average of 40 people per year die in high-rise fires, mostly apartments. (Buildings, September 1, 2017)

If Trump’s tax plan is able to bring back the cash major corporations are parking overseas, this could be a huge future company and property acquisition binge, with $400-500 billion dollars at stake just for San Francisco Bay Area companies. (Bay Area News Group, September 27, 2017)

“Supporting social interaction between employees is a top selling point for new talent and can help spark ideas, increase employee engagement, and create a sense of well-being. Spaces that reinforce interaction, such as corporate cafés, fitness centers, game rooms, and outdoor seating areas, are fundamental mechanisms for enhancing the social culture.” (Facility Executive, June 1, 2017)

The Global Workspace Association helps us understand how the indoor environment affects productivity and tenant satisfaction – air quality, thermal comfort, light, acoustics, density and other factors in order to provide an optimal order in tenant environment. How do these factors increase performance and decrease stress? (GlobeSt.com, September 26, 2017)

How will Augmented Reality affect the future of office layout design? Apple  iPhone 6 and above can apparently run new ARKit programs to allow three-dimension views of how furniture can be laid out in a home, moved around, take measurements, and, by now, they may be impacting the business segment as well. In the not too distant future, easy 3D modeling of how your future office will look with easy modifications made in 3D. (Computerworld.com, September 20, 2017)

New office design software and Virtual Reality goggles allow the user to draw a floor plan with your fingers or a stylus, then dragging desks, windows, doors, chairs onto the plan – the app then turns this into a 3D Visualization where you can put on the goggles and see how the space will look, walk around, move the furniture and be one with the space … (SIOR report, summer 2017)

In an article published in the SF Business Times on August 17, 2017, major corporations and an increasing number of landlords are bringing “wellness” into the workplace. “Some simple strategies are known to improve employee health, well-being and performance. Those include providing access to natural light, fresh air, views, outside space, and water along with gyms, quiet rooms, a room for mothers to pump breast milk, and lounges for employees to gather, take a class or host events.”

Jordan, a junior down at Cal Poly, president of Alpha Epsilon Pi fraternity and now is a business major. I was hoping for a doctor in the family , but oh well … After surviving running with the bulls in Spain in June and working most of the summer, he is back focused on college grades and enjoying the amazing Cal Ploy school environment. Madison is a freshman at San Ramon Valley High, loves school, just finished a fun soccer season with the Mustang Diablos (no, don’t ask her how they did …) and is looking forward to going with her dad and brother to Costa Rica during her holiday break in December.

Unbelievable natural disasters with the hurricanes, monster fires, earthquakes and crazy shooters – life sometimes wobbles along, we always recover, but it is almost never the same afterwards. It is so hard to imagine the deep loss of 40+ fellow human beings in the Wine County fire, and the destruction of more than 6,000 homes is almost beyond comprehension. Almost all of us have suffered to mostly a lesser degree, some more severe, whether it be the death of a loved one, a terrible divorce, a financial disaster or other calamity. We pick ourselves off, mourn and then begin rebuilding physically, emotionally and/or mentally. In spite of everything, no matter what we do or not do, life goes on …

Sincerely,
Jeffrey Weil, MCR.h, SIOR, CCIM
Executive Vice President
Colliers International

2017 OFFICE SPACE LEASING RESOURCE FOR NORTHERN CALIFORNIA TENANTS. ALL RIGHTS RESERVED.
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