The onset of the coronavirus pandemic has damaged leasing activity across all major property types in Northern California’s Bay Area, with the population largely staying at home and job losses reaching unprecedented levels around the country, economic activity has come to a near standstill.
Office properties are largely empty, the current economic downturn has hit the retail sector particularly hard, and some apartment renters are struggling to make their payments. There is serious uncertainty facing the future progress of commercial businesses and the properties they occupy as the country faces continued economic uncertainty.
In addition, companies are reassessing future space needs and real estate expansion plans. Many firms are looking at vastly expanded work-from-home models. Tech companies like Google, Facebook, Amazon and Microsoft have announced plans to allow employees to work from home through much of 2020, and Twitter CEO Jack Dorsey announced that many of his employees will be able to work from home permanently. While it remains to be seen just how prevalent adoption of work-from-home models could become, the trend does present a serious headwind for office demand.
But the relative winner through the current pandemic could be industrial properties. Consumers have had to accelerate their adoption of online shopping, as all but essential retailers have been closed. And those most at risk from the virus, or fearful of potential consequences, have moved to online shopping and delivery services for essential household goods and groceries. The expansion of e-commerce necessitates both additional warehouse space for holding goods, as well as logistics and last-mile distribution facilities to get orders out to consumers in a timely fashion.
By: Marco Cuguia
In the seven weeks since California’s shelter in place order went into effect on March 17, the Bay Area has averaged over 200,000 square feet weekly in new industrial leases. The figures are inclusive of seven Bay Area metropolitan areas, including San Francisco, San Jose, East Bay, Vallejo-Fairfield, Napa, Santa Rosa and San Rafael.
To put the average 200,000 square feet of weekly leasing into a better context, since the beginning of 2006, weekly leasing activity has averaged 370,000 square feet. This implies that the pandemic has certainly had a significant effect of industrial leasing, with average leasing activity pulling back over 40%. But with retail leasing down 70%, and office leasing pulled back 75% over the past seven weeks, the industrial sector looks like a point of strength.
Some of the largest leases signed since the beginning of March were by Amazon, which leased 250,000 square feet at the Victory Station project in Sonoma that was completed in late-2018, as well as 380,000 square feet at the under-construction Bridge Point Silicon Valley project in Milpitas. Other significant deals over the past several weeks included SuperMicro leasing 245,000 square feet at 48350 Fremont Blvd. in Fremont and U-Haul leasing over 100,000 square feet at 2391-2399 W. Winton Ave. in Hayward.
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