san francisco commercial real estate news

Category: san francisco commercial real estate news (12)

Oct

CRE News: 10/7/16 Week In Review

San Francisco CRE News:

Prop W to Raise Transfer Tax on Real Estate Sales

This November, in addition to the affordable housing measure (Prop U), San Francisco voters will also have Prop W on their ballots–otherwise known as the “Real Estate Transfer Tax on Properties Over $5 Million.” Authored by Supervisor Kim, the measure proposes increasing the rate of transfer tax on sales from a current rate of 2% to 2.25% on properties valued at $5-$10 Million; from 2.5% to 2.75% on properties valued at $10+ Million; and, from 2.5% to 3% on properties with a value in excess of $25 Million.

According to the Examiner, the transfer tax will not change on properties valued under $5 Million, which are currently taxed on a progressive tax schedule, with the lowest tax rate of “.68 percent for sales that are more than $250K and less than $1 Million.”

The majority of the Board of Supervisors support the Measure, but Prop W has its opponents as well, namely the San Francisco Apartment Association who fears the tax will have a negative impact on renters–in a city that already has some of the highest rents in the nation.

Related Article: San Francisco Business Times – Prop W

420 Taylor Street Sells for $45 Million

According to BISNOW, the 78,000+/- square foot office building located at 420 Taylor Street in Union Square has sold for $45 Million, or $576 a square foot.

420 Taylor Street Lobby

420 Taylor “previously was the headquarters for NBC radio affiliate KNBR … and was the first air-conditioned building in the city. It had a secret entrance from the Clift hotel so the celebrities could sneak into the studio undetected. The secret entrance still exists, but is no being used,” the article reports.

Slated Potrero Hill Development would transform industrial warehouse property into dorms for Students of CCA

Socketsite has reported that the corner of Arkansas & 17th Streets in San Francisco’s Potrero Hill neighborhood is planned for a full transformation from a single-story industrial building to a “building (that would) rise up to 48-feet in height” with ground floor retail, bike storage, and a multi-purpose room for students.

75 Arkansas Street

As industrial spaces continues to disappear in San Francisco as zoning designations change along with redevelopment projects, warehouse and production facilities may become even higher in demand–and/or manufacturers make be forced east and south seeking industrial product.

San Francisco Office Leasing Plummets in Q3

Roland Li of The San Francisco Business Times has reported that office leasing activity in San Francisco has fallen to “the lowest third-quarter activity since 2001.”

While this dramatic decrease may signal a major real estate cool down on the horizon, some industry experts believe the drop in activity is due to the “overheated” market in the past few years. Amber Schiada, director of Northern California research at JLL, is quoted as stating that she “expects rents to stay flat for the next year, but no major downturn (and that) people shouldn’t worry,” the article reported.

Because office rents have soared over the past consecutive 12 quarters, driven by start-up and tech giants leasing mammoth sized spaces, many other smaller office tenants have been driven from the city. Leveling rents brought upon by the slowdown in office leasing activity could “bring some relief for Tenants”, suggests Li.

Deutsche AM Acquires 35 Property Portfolio

Randyl Drummer of CoStar has reported that Deutsche AM has acquired 3.3 million square feet of industrial properties spanning from San Francisco to Chicago:

Deutsche Asset Management has purchased a 19-property industrial portfolio from International Airport Centers (IAC), with properties totaling 3.3 million square feet in seven U.S distribution markets.

The portfolio consisting of 35 buildings in the Los Angeles, San Francisco, Seattle, Dallas, Chicago, Portland and San Diego markets. The portfolio is 99% leased to 76 tenants, with an average tenant size of about 40,000 square feet.

Deutsche AM’s real estate investment business acquired the portfolio on behalf of an institutional investor through direct negotiations with Perlmutter Investment Co., the seller’s investment advisor. Deutsche did not disclose the sale price or other terms of the sale which closed Sept. 22.

“The portfolio’s geographic diversity across large distribution hubs and stable tenant base makes it an attractive investment,” said Todd Henderson, head of alternatives – real estate, Americas.

Deutsche Asset Management’s real estate investment business, part of the bank’s alternatives platform, had $53.6 billion in assets under management as of June 30.

Frankfort, Germany based Deutsche Bank AG, under pressure to shore up its weak capital position, has been advised by some analysts to sell the lucrative asset management business, which is said to be worth up to $9 billion.

Jun

Bay Area CRE News: Tesla’s Real Estate Portfolio Grows

Source: BisNow News
By: Aswin Mannepalli
Date Posted: June 14, 2016

Tesla is gobbling up Bay Area real estate as it aims to build 1 million cars by 2020. The automotive company is closing in on Apple and Google as one of the major real estate holders in the region.

While Tesla officially declares 6.6M SF of commercial space, the San Francisco Chronicle reports the real number is closer to 8.3M SF. The first number only takes into account holdings such as the 5.4M SF factory and 350k SF headquarters. The 8.3M SF figure, however, adds all stores, service centers and 1M SF in facilities that will come online soon. Analysts expect the company to keep growing rapidly to meet production targets. It remains to be seen if the company will grow in the Bay Area or move east as it did when it built the Gigafactory in Reno. Electric car companies such as Tesla competitor Faraday Future also have pursued Bay Area space for their expansion plans. [SFC]

Link to Bisnow Article: Tesla Major CRE Player

Link to SF Chronicle Article: Tesla’s CRE Empire

May

San Francisco CRE News: Is the Office Market Cooling?

Source: San Francisco Business Times
By: Roland Li
Date Posted: May 2, 2016

Boston Properties, San Francisco’s largest office landlord, thinks the country’s hottest office market is cooling.

In an earnings call last week, Doug Linde, president of Boston Properties (NYSE: BXP), said that San Francisco’s office market is seeing fewer space needs from larger tenants, which could indicate a slowdown, while Silicon Valley’s activity is growing.

“I think the big difference between the market then — i.e. in 2014 and 2015 — and today is really the lack of large growth requirements, and by that I mean big tenants over 300,000 square feet,” said Linde, according to a transcript.

Boston Properties, which had 5.8 million square feet of office space in the Bay Area market at 93.8 percent occupancy as of December 2015, is working on some of the largest office projects in the city. Along with minority partner Hines, Boston is building Salesforce Tower, which will be the tallest tower in the city when it opens next spring. Still, Linde cited some pullback.

“San Francisco has slowed from the pace that it was going at in 2014 and 2015. Silicon Valley continues to be very active and actually has been expanding,” he said. There’s a dearth of huge tenants such as Salesforce.com, Stripe and LinkedIn, who all signed huge leases over the past three years, he added.

“So technology is still a vibrant part of the market, it’s still expanding, it’s not quite in the same manner that it was in 2014 and 2015,” said Linde.

Linde’s perspective mirrors the consensus of many real estate brokerages, who have projected a slowdown this year after record leasing activity in the past few years. However, the majority of first quarter reports anticipates that San Francisco will remain one of the country’s most expensive markets. Asking rents are over $70 per square foot, and vacancy is hovering around 5 percent for Class A space.

But some real estate professionals fear that a full downturn could occur. They see a tech bubble, citing startups with unsustainable business models that are committing to huge blocks of space that they likely won’t fill.

Boston Properties, though, says its developments are filling up. Salesforce Tower is now 59 percent occupied, said Linde on the earnings call, and the landlord is in talks with both single-floor and multi-floor tenants. He said that by the end of the second quarter, the company hopes to complete another 100,000 square feet in leases.

In the past quarter, Bain & Co. and Vy Capital have signed leases at Salesforce Tower, underscoring continued demand from non-tech tenants. CBRE Group Inc., the tower’s own broker, is also close to a lease. Boston Properties also completed 535 Mission St. in 2014 and is seeking approvals for a 1.1 million-square-foot project at Fourth and Harrison streets in the Central SoMa district.

However, Boston Properties has also shown caution. Michael Tymoff, Boston Properties’ senior project manager, development, told the Business Times in February that the company has declined to pursue projects because expected returns didn’t match land or construction pricing.

“We are very disciplined, both in our timing and the selectivity of sites,” he said. “While we evaluate every project on its own merits, we currently target 7 percent returns or better for our ground-up office developments.” Tymoff didn’t immediately respond to requests for additional comment on Monday.

Brokerage data also indicates that Linde’s comments on tenant demand may be inaccurate. JLL is tracking over 9.3 million square feet of current demand in San Francisco, including three tenants with requirements over 500,000 square feet.

Brokers have said that Google Inc. (NASDAQ: GOOG), as well as health care and financial services firms are seeking large blocks of space over 300,000 square feet. Amazon.com Inc. (NASDAQ:AMZN)’s Twitch and cloud-computing company Okta, and co-working firm WeWork are also looking for spaces larger than 100,000 square feet, according to multiple sources.

The slowdown this year is in part because the last three years have seen record activity, and the pipeline of new projects, including Salesforce Tower, have rents as high as the triple digits.
“A lot of the growth has already occurred,” said Amber Schiada, director of research for Northern California at brokerage JLL. “If you’re a big company like that, you’re not eager to take on $80 rents or $100 rents.”

There’s also more scrutiny for rising costs. “VCs are really pulling back on expansion on their younger companies, trying to minimize burn rates,” said Schiada, referring to venture capitalists.

New towers in the Transbay district including 181 Fremont St. and Park Tower have signed no tenants, but those buildings also won’t be delivered until late next year or later, said Schiada. Tenants are showing a preference for pre-built space that is ready for occupancy, she said.

Another big public landlord, Kilroy Realty Corp. ( NYSE: KRC), stated last week during its earnings call that San Francisco remained strong, and sublease space was being filled up.

Mike Sanford, Kilroy’s executive vice president of Northern California, said that the company was still seeing strong demand. “Down on the street there’s just more activity, more tenants coming to the buildings, looking for space and then boots on the ground,” said Sanford.

Link to article: Office Slowdown

Mar

SF CRE News: Increase in Office Sublease Space – Sign of “Tech Wreck” or Corrective Adjustment?

Source: The Registry
By: David Goll
Date Posted: March 30, 2016

While some San Francisco real estate observers worry a sizable increase in office space available for sublease may signify a potential property “tech wreck” in the works, others view an increasing amount of available space as more of a corrective adjustment that’s creating some benefit.

According to a report from Cushman & Wakefield, the amount of office space being subleased in San Francisco, including the Financial District and SOMA, jumped from 1.3 million square feet in the third quarter of 2015 to nearly 1.7 million square feet in the fourth quarter. By the end of February, that number had climbed to 1.9 million square feet. As of March 21, 2016, JLL reports that this type of sublease availability has climbed to 2.28 million square feet in San Francisco.

About half of the space available for sublease is coming from technology companies, according to the JLL and Cushman & Wakefield reports. That translates to 45 of the 138 subleases in San Francisco, or close to 1.1 million square feet. And while 41 percent of companies gave contracting or consolidation as their reasons for subleasing space, 26 percent cited relocation inside the San Francisco city limits, while 22 percent are moving all or part of their businesses out of the city, according to Cushman.

“We saw the trend begin to intensify in the fourth quarter [of 2015],” said Christina Clark, senior vice president in the San Francisco office of Cresa Corporate Real Estate. “Our clients were starting to evaluate whether they were occupying too much space, what would be the best way to handle and utilize it. Others are wondering if the high costs are going to continue and whether it was worth getting into a seven-year agreement with unfavorable terms.”

As a result, Clark said leasing activity began to slow as companies “pushed the pause button.”

“We have been monitoring this trend since the second quarter of 2015,” said Andrew Nicholls, advisor in Cresa’s San Francisco office. “That’s when we noticed a distinct shift in the market.”

Colin Yasukochi, director of research and analysis in the San Francisco office of CBRE Group, the Los Angeles-based commercial real estate firm, said the subleasing trend became especially notable late last year, coming mainly from the tech sector. The reasons are varied.

“Some are expanding into new offices here in San Francisco, while some just have excess space they don’t need right now,” Yasukochi said. “There’s a variety of reasons. And what we are seeing, especially with high-quality subleased space, is that it’s not staying on the market that long. It frequently is leased within three to six months.”

Yasukochi said he doesn’t regard the current inventory of subleased space—which covers all grades of office space, but mostly A and B—to be an excessive amount.

“If there was, you would see much bigger discounts offered on space being leased directly from landlords, like 30 or 40 percent,” he said. “When the market is healthy, the discounts are not that large. Subleased space is increasing, but we’re not seeing large discounts.”

According to his research, Yasukochi said the amount of subleased space in downtown San Francisco has jumped from 1.1 million square feet in October to 1.7 million square feet in March. Unlike other observers, who predict that figure will grow substantially by year’s end, he is not quite as certain of that outcome.

“It could grow, but this is an evolving situation and that has yet to be determined,” Yasukochi said. “We will see if the supply continues to exceed demand.”

JLL’s figures tell a similar story today. Five of the largest eight sublease spaces are already in some form of discussions for the space to be subleased. Those top five available spaces are Charles Schwab’s 305,502 square feet at 215 Fremont, Dropbox’s two spaces at 185 Berry for a total of 212,000 square feet, Bingham McCutchen’s 98,000 square feet at 3 Embarcadero Center and Yahoo’s 60,000 square feet at 343 Sansome, which was just subleased to Airwave, a drone software platform company. If all these negotiations result in a new tenant, that would drop the available space to 1.6 million square feet, a 30 percent drop from where we are today. One thing to note, however, according to JLL’s report, is that 43 of the 138 available spaces came to the market in the last month, a 45 percent jump in absolute number of spaces. Some of this space includes nearly 25,000 square feet from Medium at 760 Market, nearly 34,000 square feet from Zenefits at 303 2nd Street, 18,000 square feet from Riverbed at 680 Folsom and 11,000 square feet from Box at 100 1st Street.

Asking lease rates for Class A office space downtown being offered directly from landlords averages about $76 per square foot annually, a figure which grew 14 percent in the fourth quarter of 2015, Yasukochi said. Though it would depend on the condition of the space being subleased by another tenant, asking lease rates would likely be about $65 per square foot annually this spring, he added.

“If it’s in good shape and there’s lots of interest in it,” Yasukochi said of space at those rent levels, which are reflective of the 10 to 15 percent discounts being offered.

Drew Arvay, senior vice president in the San Jose office of Cushman & Wakefield, said he’s aware of the glut of space available for sublease in San Francisco, but said it’s a different dynamic in Silicon Valley—or cities in Santa Clara, San Mateo and southern Alameda counties. It even goes by a different name.

“We call it shadow space,” Arvay said. “There are instances where companies are seeking to sublease space, but it often is on a short-term basis.”

On the other hand, Arvay said some of the Valley’s largest tech giants that occupy millions of square feet of office space might keep a few hundred thousand square feet empty for anything from storage to future productive use when they expand operations again.

“How companies are using space has really shifted in recent years,” he said. “We went from private offices and hallways to cubicles. The cubicles started out averaging 250 to 275 square feet of space per person, but then shrunk to 160 square feet. Now, cubes are disappearing and being replaced with even smaller work pods or benches, or shared space.”

But Silicon Valley companies are offsetting the downsized workplace trend by continuing to hire employees by the thousands, so they are reluctant to shrink their office footprints too substantially. Arvay said Gensler, the San Francisco-based architecture, design and planning firm, has dubbed Silicon Valley companies as the most efficient users of work space.

“That’s not to say we are immune from having surplus space that could be available for subleasing, but this is still a different situation from downtown San Francisco,” he said.

He added there is another dynamic at work in Silicon Valley and elsewhere in the corporate world over the past three years since Yahoo Inc. CEO Marissa Mayer famously ended her company’s popular work-from-home policy for employees.

“Employers have discovered innovation is born of collaboration, of employees talking to one another during the work day, talking over lunch,” Arvay said. “The money they used to save on renting space by having employees work in their pajamas from home was being lost by a decrease in developing innovative ideas.”

Both Clark and Yasukochi said they see another potential storm cloud on the horizon for San Francisco employers: the possible decrease in VC funding, mainly affecting the tech sector.

“We are hearing that while companies are still getting funded, some are getting less funding or having trouble getting another round of funding,” Clark said. “VC funding is critical, so we are watching that very closely. That trend really started accelerating in the fourth quarter, making tenants seriously consider whether they need so much space.”

Link to article: Sublease Conundrum

Jan

San Francisco CRE News: SF Tops Country in Strongest Office Market

Source: Bisnow
By: Allison Nagel
Dated Posted: January 26, 2016

For the first time in history, San Francisco’s office rents have blown past Manhattan, recognizing the city and the Bay Area’s shift toward becoming the nation’s power center as more major companies establish a presence in the area. We chatted with Colliers regional executive managing director Alan Collenette about the brokerage’s new report.

Calling it San Francisco’s “Glittering Age,” Alan says the shift west with the growth of the tech industry marks an era, not a short-lived boom.

San Francisco is the nation’s healthiest office market, Alan says. He argues the world has shifted to a knowledge-based economy that thrives on innovation, and San Francisco is its epicenter as the home to major tech firms, such as Apple, Google, Facebook, Pinterest, Twitter and more, according to the report released by Colliers.

While there has been a lot of consternation about world events and economic woes, Alan tells us the worry may be blown out of proportion. On China in particular, he says exports only account for 13% of the US economy (and China makes up less than 8% of that, or just 1% of our overall economy). China is still growing strongly (more than twice the rate of US growth) with currency that hasn’t been devalued nearly as much as the currencies of other major US trading partners, he tells us. So China may import fewer products and services from the US, but will have a relatively limited direct hit on our near-term economic growth.

In addition, Alan tells us the US added an average of almost 300,000 jobs a month in Q4 and the yield curve (that harbinger of recessions) is still upward sloping (the spread between 10-year and two-year bonds is above its long-term average). Both are signs of a strong economy.

The brokerage firm’s year-end office market research study found:

-Office rents higher in San Francisco ($72.26/SF) than Manhattan ($71.26/SF);
-Vacancies of 7.2% in San Francisco vs. 9.6% in Manhattan;
-Annualized rents are up 11.8% in San Francisco;
-Sublease space at 0.7% of San Francisco’s 90M SF office market (compared with a high of 5.1% after the dot-com bust of 2002 and 1.6% during the recession in 2009);
-Absorption rates totaled nearly 180k SF in Q4 (total absorption for the year was 1,569,532 SF);
-Nearly 6.3M SF leased in San Francisco in 2015;
-36 office sales transactions totaling $3.7B closed during the year (compared with 50 sales for $5B in 2014, but still above the historical averages of $2B to $3B);
-Class-A prices rose to $675/SF, compared with $615 a year ago; and Class-B prices rose to $573/SF from $508 a year ago.

The report notes San Francisco’s 7.2% vacancy rate for Q4 included four office properties that are pre-leased but not occupied (the study only counts occupied buildings): 350 Mission St, 222 Second St, 333 Brannan St and 345 Brannan St. Those buildings are expected to be occupied in the first half of this year, dropping the vacancy back to 7% or lower.

Such growth, a strong economy, high leasing rates, pre-leasing and a robust pipeline of projects under construction mean that 2016 will remain strong for office development, the study notes. Overall, there is nearly 5M SF total under construction with 36% of it pre-leased, Alan says.

Read more at: SF Office Rents Top Manhattan

Jan

San Francisco CRE News: City Proposal Would Double Affordable Housing Requirements

Source: San Francisco Business Times
By: Roland Li
Date Posted: January 12, 2016

Supervisor Jane Kim will introduce a charter amendment today to more than double San Francisco’s affordable housing requirements for market-rate projects to 25 percent.

The change would require voter approval in the June election. The city currently requires market-rate projects to provide 12 percent of their units below market rate. Alternatively, developers can now build 20 percent of their units off site or pay a fee equal to 20 percent of the value of the units. Kim’s proposal also increases the off-site units and the fee to 33 percent each. The charter amendment would also allow the Board of Supervisors to make additional changes to the inclusionary housing policy without going back to voters by removing the existing policy from the charter.

The proposal is likely to spark a fight. Market-rate developers have argued in the past that increasing affordable housing requirements may result in less — not more — affordable housing since the costs could make some housing projects financially infeasible.

Urban think tank SPUR characterized Kim’s new proposal as “undoing the grand bargain” that established the Affordable Housing Trust Fund in 2012. Following the loss of state redevelopment funds for affordable housing, voters approved using general fund revenue to support affordable housing. In addition, the city lowered the affordable housing requirements to 12 percent for market-rate projects. Gabriel Metcalf, president of urban think tank SPUR, is critical of proposing new requirements without doing a study.

“It’s not a good idea to make up an inclusionary requirement out of thin air,” said Metcalf. “We have no way to judge what the right level would be right now. We should do an objective study to set the levels, not have one side re-set them to its liking whenever the political winds are blowing in its favor. Say what you will about the 2012 measure, but it had the involvement and concurrence of lots of different sides in the housing debate.”

Kim’s legislation broadly aligns with Mayor Ed Lee’s call to increase the affordable housing requirements, but he hasn’t proposed a specific requirement and had sought to work with developers to find a consensus.

But Kim called for immediate action. “With the ridiculously high cost of living in the Bay Area, our middle class residents are also vulnerable to losing their homes due to skyrocketing rents they can’t afford or by being pushed out of rent controlled buildings by the landlord. And most of them won’t be able to afford another place in the City,” Kim said in a statement. “This is an urgent step we can and should take now.”

Newly elected Supervisor Aaron Peskin is co-sponsoring the legislation and cites the 40 percent affordable housing numbers at Forest City’s 5M project and the San Francisco Giants’ Mission Rock as precedents for higher affordability requirements. “With Supervisor Kim’s recent successes negotiating unparalleled affordability requirements at Mission Rock and 5M, we know the market can bear it – and so do our constituents looking for relief,” said Peskin in statement.

However, those two projects aren’t indicative that the broader market can bear a higher affordable housing requirements, according to developers. 5M has 825,600 square feet of office space planned and Mission Rock has 1.3 million square feet of office space, which gives them additional revenue sources. The massive size of each project, with 5M’s 688 residential units and Mission Rock’s 1,500 residential units, also give them big enough scale to fund 40 percent affordable housing requirements. A small multifamily project would not necessarily be able to bear the cost of a quarter of its units, developers said, particularly if land prices didn’t fall in response to new requirements.

High affordability also hasn’t swayed opposition to 5M. Three neighborhood groups are now suing to block the project after it received city approval, alleging that the environmental impact study didn’t adequately measure the effects of the project.

Kim’s measure calls for new market-rate projects to provide 15 percent of units below-market-rate housing for renters making up to 55 percent of the area median income, or $39,250 for a single resident under the 2015 fiscal year definition. Rents would be no more than $981.25, or 30 percent, for such income levels. An additional 10 percent of units would be for those making 100 percent of the area median income, or $71,350 for a single resident, which would have rents up to $1,783.75 per month.

For-sale projects would have higher affordability thresholds, with 15 percent of units reserved to those making 80 percent of the area median income, and 10 percent reserved for those making 120 percent of the middle income.

Funding for affordable housing in the Bay Area has decreased due to the state’s 2012 elimination of Redevelopment Agencies and falling federal support. That lack of funding, in addition to an increase in housing demand and spiking prices, has pushed cities around the Bay Area to seek more concessions from market-rate developers. Oakland, San Jose, Berkeley and Emeryville have all moved to implement new fees or increase existing ones to fund affordable housing.

If the fee level is too low, as Supervisor Kim is arguing, the city is not maximizing its funding for affordable housing. But if fees are too high, there’s risk that market-rate development could slow and overall affordability could decrease as demand rises faster than supply, said Metcalf.

Supporters of the ballot measure include the nonprofit Tenants and Owners Development Corp., a prominent South of Market nonprofit, and the Council of Community Housing Organizations, which represents affordable housing developers and tenant advocates. They argue that the current requirement of 12 percent is outdated and that the city’s surge in market-rate construction can support more affordable housing.

“This is how public policy works. It changes and evolves to the circumstances of the time. The circumstances are totally different than 2011,” said Peter Cohen, co-director of CCHO.
Requiring 10 percent of units for residents making around 100 percent of the area median income would also provide much-needed supply for those who struggle to pay market-rate but make too much to qualify for most below-market-rate units, said Cohen. Kim’s proposal “ensures that market-rate projects will continue to provide a portion for middle-class households,” he said.

Link to article: SF to Double Affordable Housing Requirements?

Dec

San Francisco CRE Tech News: Rents & Wages still Soaring in Bay Area

Source: San Francisco Chronicle
By: Kathleen Pender
Date Posted: December 3, 2015

Fierce demand for tech workers and office space in the Bay Area continues to push wages and rents into the stratosphere.

In San Francisco, the average annual wage for tech company workers rose to $176,275 in 2014, up 12.8 percent from the year before. That was the biggest increase among 36 markets nationwide, according to JLL, a commercial real estate services firm.

The wage might sound high, because it includes salary, bonuses, income from stock options, severance pay, cash value of meals, tips and certain other types of compensation.

San Mateo County had the nation’s highest average tech company wage last year, $240,663. That was actually down 23 percent from 2013, when the county’s average was probably distorted by a $3.3 billion stock option gain reaped by Facebook CEO Mark Zuckerberg. It was also skewed in 2012, when the Menlo Park company went public and Zuckerberg made a $2.1 billion profit exercising options, said JLL Vice President Amber Schiada.

“It’s crazy how just one company can move the needle, but San Mateo’s tech-job base is small” compared with neighboring counties, Schiada said. Last year, with no Zuckerberg options in the picture, San Mateo County’s average tech wage looked a little more like its neighbors’.

In Santa Clara County, the average tech company wage was $211,874, up 8.4 percent from 2013. In Alameda and Contra Costa counties, it rose to $121,747, up 6 percent.

These numbers, derived from federal and state labor market data, reflect average wages in eight industries selected by JLL: computer/electronic product manufacturing, electrical equipment manufacturing, e-retailers, online auctions, computer systems design, data processing and hosting, software publishers, and other information services.

By comparison, the average wage in all industries nationwide last year was $51,364 in 2014, up 3.1 percent, according to the U.S. Bureau of Labor Statistics.

The growing disparity between tech workers and everyone else is putting pressure on cities to raise their minimum wage and even helped win a pay raise for tech bus drivers, said Steven Levy, director of the Center for Continuing Study of the California Economy. But these gains at the bottom of the income scale “are swamped by increases in housing prices, mostly rent.”

Office rents soar: The same bidding wars driving up tech wages and housing are also driving up the cost of office space. The average asking rent in the third quarter was $66.80 per square foot per year in San Francisco, up 12.6 percent over the previous 12 months. It was $53.49 in San Mateo County, up 16.4 percent, and $41.68 in Santa Clara County, up 3 percent. That compares with a U.S. average of $30.59 per square foot.

Tech companies hoping to avoid the Bay Area’s high cost of labor, housing and office space are considering locating in secondary and tertiary tech hubs. In a report, JLL analyzed 37 markets based on their costs (wages, office space and housing) and startup opportunity (measured by employment and wage growth, Millennial workforce and education levels, patent activity, access to venture capital and proximity to a tech cluster or giant).

Based on these factors, San Francisco offered the highest startup opportunity but also the highest cost. Markets that offered high opportunity and more reasonable costs included Austin, Seattle-Bellevue, Denver, Chicago and Washington. Places with high startup opportunity and low costs include Las Vegas, Orlando and Nashville.

“If you are a young tech company, especially one that is sensitive to cost,” those markets look more attractive, Schiada said.

The report pointed out that only 59 percent of unicorns — private companies valued at $1 billion or more — are now based in San Francisco and Silicon Valley, down from 76 percent in 2014.

That said, Silicon Valley “is still the center of the tech universe” and will be for the foreseeable future, Schiada said.

Santa Clara County was by far the largest center of leasing activity over the past year, measured by leases of 20,000 square feet or greater signed by tech companies. Such leases accounted for 5.4 million square feet, more than twice as much as in the No. 2 market for tech leasing, San Francisco.

Which companies leased the most new space? In Santa Clara County it was Google, which signed up for 2.1 million square feet in Mountain View. In San Francisco it was Uber, which took on 310,000 additional square feet. In San Mateo County it was Survey Monkey, which leased 210,000 square feet at Bay Meadows. In the East Bay, it was Workday, which rented 151,000 square feet in Pleasanton, Schiada said.

These numbers exclude companies that purchased major new office space, including Uber in Oakland and Salesforce.com in San Francisco.

Rents are soaring …

Average asking rents for office space in the nation’s 10 most expensive tech submarkets:

Downtown Palo Alto: $98.68

Downtown Mountain View: $87.53

Mission Bay/China Basin, S.F.: $81.50

Hudson Square, N.Y.: $81.50

Soho, N.Y.: $79.80

Gramercy Park, N.Y.: $76.58

Menlo Park**: $73.44

South Financial District, S.F.: $68.61

North Financial District, S.F.: $68.53

East Cambridge, Boston: $67.21

*Per square foot, per year for full-service leases in the third quarter of 2015

**Excludes Sand Hill Road

Source: JLL

… And so are wages

Top 10 markets for tech company wages

Market

Annual wage, 2014*; Change from 2013

San Mateo County: $240,663; -23.5%

Santa Clara County: $211,874; 8.4%

San Francisco: $176,275; 12.8%

Seattle-Bellevue; $154,390; 7.4%

New York City-Brooklyn: $135,339; 7.8%

Boston: $131,278; 3.9%

Alameda & Contra Costa counties: $121,747; 6.0%

Northern Virginia: $119,901; 2.6%

Portland: $112,185; 7.8%

Suburban Maryland: $109,027: 5.4%

*Includes salary, bonuses, income from stock options, severance pay, cash value of meals, tips and certain other types of compensation.

Sources: JLL, Bureau of Labor Statistics, California Employment Development Department

Link to Article: Wages, Rents Up

Oct

San Francisco 3rd Quarter Industrial Market Report

San Francisco’s Vacancy Increases to 3.6%
Net Absorption Negative (517,362) SF in the Quarter

Source: CoStar

The San Francisco Industrial market ended the third quar- ter 2015 with a vacancy rate of 3.6%. The vacancy rate was up over the previous quarter, with net absorption totaling negative (517,362) square feet in the third quarter. Vacant sublease space decreased in the quarter, ending the quarter at 337,738 square feet. Rental rates ended the third quarter at $17.82, an increase over the previous quarter. There was 293,100 square feet still under construction at the end of the quarter.

ABSORPTION

Net absorption for the overall San Francisco Industrial market was negative (517,362) square feet in the third quar- ter 2015. That compares to positive 89,907 square feet in the second quarter 2015, positive 111,275 square feet in the first quarter 2015, and positive 255,214 square feet in the fourth quarter 2014.

Tenants moving out of large blocks of space in 2015 include: Nippon Express U.S.A. moving out of (188,000) square feet at 250 Utah Ave, Tyco Electronics moving out of (184,462) square feet at 300 Constitution Dr, and Hajoca Corporation moving out of (40,000) square feet at 1111 Connecticut St.

Tenants moving into large blocks of space in 2015 include: Green Leaf moving into 105,600 square feet at 455 Valley Dr, Invitae Corporation moving into 103,213 square feet at 1400 16th St, and Flying Food Group moving into 69,500 square feet at 240 Littlefield Ave.

The Flex building market recorded net absorption of posi- tive 26,642 square feet in the third quarter 2015, compared to positive 203,145 square feet in the second quarter 2015, positive 104,924 in the first quarter 2015, and positive 114,780 in the fourth quarter 2014.

The Warehouse building market recorded net absorption of negative (544,004) square feet in the third quarter 2015 compared to negative (113,238) square feet in the second quarter 2015, positive 6,351 in the first quarter 2015, and posi- tive 140,434 in the fourth quarter 2014.

VACANCY

The Industrial vacancy rate in the San Francisco market area increased to 3.6% at the end of the third quarter 2015. The vacancy rate was 3.2% at the end of the second quarter 2015, and remained at 3.7% at the end of the first quarter 2015 compared to the previous quarter.

Flex projects reported a vacancy rate of 3.9% at the end of the third quarter 2015, 4.0% at the end of the second quarter 2015, 5.0% at the end of the first quarter 2015, and 5.4% at the end of the fourth quarter 2014.

Warehouse projects reported a vacancy rate of 3.5% at the end of the third quarter 2015, 3.0% at the end of second quarter 2015, 3.3% at the end of the first quarter 2015, and 3.1% at the end of the fourth quarter 2014.

SUBLEASE VACANCY

The amount of vacant sublease space in the San Francisco market decreased to 337,738 square feet by the end of the third quarter 2015, from 339,249 square feet at the end of the second quarter 2015. There was 333,754 square feet vacant at the end of the first quarter 2015 and 285,144 square feet at the end of the fourth quarter 2014.

San Francisco’s Flex projects reported vacant sublease space of 159,239 square feet at the end of third quarter 2015, down from the 164,850 square feet reported at the end of the second quarter 2015. There were 186,108 square feet of sub- lease space vacant at the end of the first quarter 2015, and208,699 square feet at the end of the fourth quarter 2014.

Warehouse projects reported increased vacant sublease space from the second quarter 2015 to the third quarter 2015. Sublease vacancy went from 174,399 square feet to 178,499 square feet during that time. There was 147,646 square feet at the end of the first quarter 2015, and 76,445 square feet at the end of the fourth quarter 2014.

RENTAL RATES
The average quoted asking rental rate for available Industrial space was $17.82 per square foot per year at the end of the third quarter 2015 in the San Francisco market area. This represented a 1.7% increase in quoted rental rates from the end of the second quarter 2015, when rents were reported at $17.52 per square foot.

The average quoted rate within the Flex sector was $28.42 per square foot at the end of the third quarter 2015, while Warehouse rates stood at $13.76. At the end of the sec- ond quarter 2015, Flex rates were $28.53 per square foot, and Warehouse rates were $13.03.

DELIVERIES AND CONSTRUCTION

During the third quarter 2015, no new space was completed in the San Francisco market area. This compares to 0 buildings completed in the second quarter 2015, three buildings totaling 118,080 square feet completed in the first quarter 2015, and nothing completed in the fourth quarter 2014.

There were 293,100 square feet of Industrial space under construction at the end of the third quarter 2015.

Some of the notable 2015 deliveries include: 901 Rankin St, an 82,480-square-foot facility that delivered in first quarter 2015 and is now 100% occupied, and 1 Kelly Ct, a 25,600- square-foot building that delivered in first quarter 2015 and is now 100% occupied.

The largest projects underway at the end of third quarter 2015 were The Cove – Building 3, a 153,047-square-foot building with 0% of its space pre-leased, and The Cove – Building 4, a 140,053-square-foot facility that is 0% pre-leased.

INVENTORY

Total Industrial inventory in the San Francisco market area amounted to 94,065,666 square feet in 4,812 buildings as of the end of the third quarter 2015. The Flex sector consisted of 23,919,746 square feet in 791 projects. The Warehouse sector consisted of 70,145,920 square feet in 4,021 buildings. Within the Industrial market there were 520 owner-occupied buildings accounting for 12,959,398 square feet of Industrial space.

SALES ACTIVITY

Tallying industrial building sales of 15,000 square feet or larger, San Francisco industrial sales figures fell during the sec- ond quarter 2015 in terms of dollar volume compared to the first quarter of 2015.

In the second quarter, 11 industrial transactions closed with a total volume of $88,245,000. The 11 buildings totaled 423,420 square feet and the average price per square foot equated to $208.41 per square foot. That compares to 17 transactions totaling $180,790,000 in the first quarter. The total square footage was 870,221 for an average price per square foot of $207.75.

Total year-to-date industrial building sales activity in 2015 is down compared to the previous year. In the first six months of 2015, the market saw 28 industrial sales transac- tions with a total volume of $269,035,000. The price per square foot has averaged $207.97 this year. In the first six months of 2014, the market posted 30 transactions with a total volume of $275,279,100. The price per square foot averaged $211.04.

Cap rates have been lower in 2015, averaging 4.34%, compared to the first six months of last year when they aver- aged 6.58%.

Full Report: 3rdQTR_Industrial

Jul

San Francisco Commercial Real Estate News: One of the World’s Largest Developers Hunts in SF

Exclusive: One of the World’s biggest developers hunts for mega projects in Oakland, S.F.
Source: San Francisco Business Times
Reporter: Cory Weinberg
Date Posted: June 30, 2015

One of the world’s largest real estate developers, Shanghai-based Greenland Holding Group, is in talks to invest and build in the Bay Area for the first time, the company’s U.S. head told the San Francisco Business Times.

I-Fei Chang, who is overseeing $6 billion worth of development for Greenland’s Los Angeles-based subsidiary, is looking for opportunities to park billions more. She said she travels to the Bay Area “biweekly” to meet with local companies and city officials about building the company’s third U.S. project here.

A development deal would draw even more Chinese capital to Bay Area real estate and introduce to the region an investor that has so far been elusive. But for a foreign company only looking at mammoth deals, finding the right project can be a headache.

“We do have something (in the Bay Area) in mind. We are busy paddling,” she told the Business Times at a National Association of Real Estate Editors conference in Miami. “It’s like a duck — you keep calm on the surface of the water but the feet are quite busy paddling in the water.”

“It always takes time. We wish it could be quicker,” added Chang, a native of Taiwan and a graduate of Yale University. “It just really depends on the accessibility of the projects that we’d have the opportunity to invest.”

Greenland Holding claims to be world’s largest property developer by floor space under construction (250 million square feet) and by sales revenue ($40 billion), the Wall Street Journal reported.

The company, which is owned by the Chinese government, took a pass on investing in Lennar Urban’s $8 billion Hunters Point Shipyard project. It instead bought a majority stake in Forest City’s $4.9 billion Pacific Park Brooklyn project next to Barclays Center. Last year, Greenland broke ground on the $1-billion downtown Los Angeles hotel, condominium and shopping complex called Metropolis, which it bought in 2013.

Greenland USA then took another stab at investing in San Francisco. Late last year, the company lost out to Shanghai-based Oceanwide Holdings in buying the First and Mission Streets property– which will span 2 million square feet of office, condominium and hotel space by 2019.

Greenland Holding has invested about $20 billion in overseas development projects since 2013, including developments in London, Sydney and Toronto. The company has more than $55 billion in global assets, according to a report by Knight Frank. Chinese builders have looked toward the western world mostly because their own residential market has cooled significantly. The Chinese government has also recently relaxed limits on outbound investments.

Investment hurdles

Greenland USA is looking to develop large mixed-use projects like their deals in Brooklyn and Los Angeles, Chang said. That separates Greenland from other Chinese developers like Vanke, the Lumina condo complex joint venture partner, and R&F Properties, the 555 Fulton St. developer, who have focused on solely residential projects.

Chang wouldn’t say how deep current development talks are. She also spoke at length about investing in areas of cities that are undergoing “transformation” and in need of middle-class housing. But she also lamented rising construction and labor costs as the U.S. real estate market heats up.

She said construction costs have risen by 20 percent on Greenland’s two current U.S. projects since the company got involved.

“We have the stomach, and we envision there’s so much space that’s under transformation quickly,” she said. “But we still want to break even with what we build… We also see some prices that are overheated and those prices go sky high. That concerns us.”

Rob Hielscher, the Western U.S. head of JLL’s International Capital Group, said a many development projects make financial sense in San Francisco, but finding large-scale development opportunities can be a struggle, particularly with the city’s Proposition M office space cap limiting the amount of office space that developers can deliver in San Francisco.

“The bigger issue is the lack of large-scale development opportunities that are currently available for groups like Greenland to purchase or invest in” he said.

Some of the biggest mixed-use projects in San Francisco’s development pipeline include Forest City’s 5M and Pier 70 projects, the Giants’ Mission Rock and Kilroy Realty Corp.’s Flower Mart. Only the Giants’ project has priority to squeeze under the office space cap.

The only mixed-use proposals of over 1 million square feet in Oakland is the Brooklyn Basin waterfront project, which attracted investment from China’s Zarsion Holdings two years ago, and East Oakland’s Coliseum City, which is fraught with political risk.

But if it does find the right deal, Greenland’s global clout will likely give it a leg up over other Chinese investors that may be less recognizable to U.S. builders, Hielscher said. “They’re a name brand that many domestic groups would want to work with,” Hielscher said.

Ready for Oakland?

Zhang Yuliang, Greenland Holding Group’s chairman, told reporters in December, that “we’d increase our investment in cities where there is potential for growth, in the big cities.”

In the Bay Area, that doesn’t just mean San Francisco. Rachel Flynn, Oakland’s planning director, and Darlene Chiu Bryant, head of the San Francisco-backed nonprofit China SF, confirmed that Greenland has met with officials from both cities about development opportunities recently.

“They seemed really interested in our city, but nothing seems imminent,” Flynn said, who added that the city told Greenland about its upcoming downtown specific plan that should clear hurdles for development. “It will be interesting to see what they end up focusing on.”

Chang seemed high on Oakland. She brushed off a question about what made her enthusiastic about a city that struggles to attract big investors because of a reputation for crime and poor government, as well as its uncertain payoff on building highrises.

Instead, she extolled Oakland’s short commute to San Francisco on BART, the proximity to the University of California at Berkeley, and the city’s waterfront.

“There’s no crime in the city if you have believers who want to believe they’re pioneers.” she said. “Why can’t we have more housing projects for the middle class that includes an easy commute? Oakland is just like a Brooklyn for us on the Pacific side.”

“It’s all about what we can do for your city and how we can have that partnership,” she added.

Interview with I-Fei Chang

What is Greenland’s mission?

It’s our mission to not only bring over Chinese capital but expertise of large-scale, mixed-use urban experience that we have in China and from our development experience in the U.K., Canada, Malaysia. We hope to invest and reach out to the community to understand the city’s vision. Our long-term partner is the city and community, to be there a long time.

Why did you land in Brooklyn and Los Angeles first? Why not the Bay Area?

Those two markets, we just were lucky to have the opportunity to select the right project at the right time — two important economic-driver kind of projects . Of course, we’d love to have the opportunity to enter the northern gate of California, to be in the Bay Area. It just really depends on the accessibility of the projects that we’d have the opportunity to invest.

You earlier called Los Angeles, not San Francisco, the “capital of the Pacific.” Why is that?

Just the population, the diversity. It’s an entertainment center. But you have the wineries.

Who is your target residential customer in the U.S.?

Two million people buy from us in China. But here it’s most important to provide urban living experiences, to develop mixed-use projects in U.S. cities. Our target customer would be U.S.-based, young professional or early retiree. They just want to enjoy urban living so we provide the facility, the garden, the daycare center, the school and the public green space to get an apartment, hotel or office; that kind of mixed-use project, a one-stop solution.

Are you finding it more difficult to locate and find opportunities in the states?

We need to meet our business cycle. What’s driving this overheated market that we are cautious of is land price and construction costs. After we obtained these two projects, construction costs rose 20 percent. And the target sales prices of the unit, we have to be cautious about what will be the next opportunity for us to choose. What will be middle-class income, and what is the price they can support if they want condominiums?

Are those opportunities even existing at this point?

Our strategy is certainly for one way to approach private owners and explain to them our vision here, our sense of urgency to make a change here. We reach out to city officials, planners, economic directors, and so on, to see if publicly-owned land can be obtained and have a public-private partnerships.

But how do you get to middle-class housing solutions? In the Bay Area, we have a lack of supply. Market rates are out of reach for the middle class, and those units fund below-market-rate units that middle-class families don’t qualify for.

There are multiple ways. I know architects and developers in Japan and Russia. In Russia, the land is dirt cheap. The land is controlled by the government, so the developers just lease, so the cost is very cheap. It (brings down) the construction costs. The government just needs to be very smart to find some developer with an injection of cash into the government land. There are various ways to utilize urban land.

Link to article: Greenland Holding

Jan

2015 Forecast: SF Office Spillover

Source: San Francisco Business Journal
Reporter: Cory Weinberg
Date: January 2, 2015

If the much-hyped San Francisco spillover of office tenants is ever going to happen, this will be the year. The city’s squeeze could start to take a noticeable toll in 2015, and other cities will be waiting with giant nets to scoop up big-name companies.

Until now, the tenant trickle to the East Bay and San Mateo County has been mostly talk. Companies recruiting young workers have flocked to San Francisco and seem to think the high cost of renting offices is worth the trouble.

Two converging forces may turn the hype into reality. First, San Francisco officials expect the city this year to hit the new office space cap imposed by the 1986 law under Proposition M.

About 4 million square feet of large office projects will be up for approval this year, enough to tip over the annual limit and constrain what gets approved. That doesn’t mean that office users will see much of an effect this year, but it is a restriction on new space nonetheless that may eventually send office rents much, much higher.

Meanwhile, Oakland, Daly City, San Mateo and San Ramon all have openings in large, attractive buildings near transit.
Oakland’s Sears building should land a tech tenant in the first half of 2015.

“San Francisco tech job growth has been seven times greater than in Silicon Valley. When you see the stats, it’s stunning,” said CBRE broker Bill Cumbelich, who is leasing the Sears building.

Bay Meadows in San Mateo also has its first office building under construction, while Bishop Ranch in San Ramon has 1 million square feet up for grabs. Daly City’s DC Station has space available, too. Still, cities in northern San Mateo County and the Tri-Valley haven’t been gotten down to single-digit vacancy rates.

“The market is getting very tight for large blocks of space and almost all of it is a result of local expansion, not San Francisco spillover,” said Bill Nork of Newmark Cornish & Carey. “Everyone was hoping, but it didn’t happen.”
Wait ’till this year?

5 key events from 2014

Salesforce dominates: Salesforce was ready to drive into Mission Bay office space when it hit the brakes. Instead, S.F.’s largest tech tenant made two huge office plays. First, it took 714,000 square feet in a Transbay tower. Later, it paid $640 million for the 50 Fremont tower.

Mission Bay’s tech future: There are about 300 acres in the Mission Bay neighborhood, and 30 of them could change the place’s whole dynamic. Uber announced it will build its headquarters there, while Kilroy Realty Corp. sketched plans for a new tech haven and the Golden State Warriors plotted office buildings next to its new arena. The turn toward tech offices could alter the identity of Mission Bay as a research hub.

Big plays for tech on the Peninsula and in East Bay: Four major office developments outside of San Francisco opened up over 2 million square feet of space geared toward tech tenants: the Sears building in Oakland, Bay Meadows in San Mateo, Bishop Ranch in San Ramon and DC Station in Daly City.

Rent gets too high for nonprofits: Increasing office rents, gentrifying neighborhoods and cheaper space in Oakland has created an exodus across the Bay for nonprofits. According to a city report, half of the city’s nonprofits left between 2011 and 2013 as rents have doubled to more than $50 a square foot in the last few years.

Redwood City’s emergence: The southern Peninsula city’s office market has the second-lowest vacancy and the second-highest rents in San Mateo County thanks in part to big plays by Google and Box this year. First, Box locked up 334,000 square feet at Crossing/900. Then, Google inked 934,000 square feet at Pacific Shores. Developers have since flooded the city with new proposals to build offices.

Link to article:
SF Office Spillover