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Category: san francisco industrial real estate (71)

Oct

Tech CRE News: Q3 Tech Office Leasing Market Still Going Strong

According to Bisnow, 2017 thus far has clocked the most leasing transactions since 2014, with tech giants like Facebook and Dropbox both inking large leases in San Francisco.

Low vacancy rates coupled with limited new construction (or new projects hitting the market pre-leased), the San Francisco market will remain restricted for the foreseeable future. However, “despite the challenging rents and diminishing availability, tech will remain a stronghold in San Francisco.” San Francisco has become synonymous with tech, and for now San Francisco is still the place to be for giants and start-ups alike.

Jun

Will Autonomous Cars Impact Real Estate?

Source: CoStar News
By: Mark Heschmeyer
Date Posted: June 14, 2017

Intel CEO Brian Krzanich has a warning for companies and industries that haven’t started to prepare for the next big tech disruptor — don’t wait.

“Companies should start thinking about their autonomous driving strategy now,” said Krzanich, who ranks the fast-developing technology on par with the rise of personal computing, the internet and smartphones for its potential impact on traditional business models.

“Less than a decade ago, no one was talking about the potential of a soon-to-emerge app or sharing economy because no one saw it coming. This is why we started the conversation around the passenger economy early, to wake people up to the opportunity streams that will emerge when cars become the most powerful mobile data generating devices we use, and people swap driving for riding.”

The new study which was sponsored by Intel and prepared by Strategy Analytics, explores the potential economic impact and industry shifts when today’s drivers become passengers and cars are controlled by an app.

“Autonomous driving and smart city technologies will enable the new passenger economy, gradually reconfiguring entire industries and inventing new ones thanks to the time and cognitive surplus it will unlock,” according to the study, which predicts the resulting productivity gains and related economic impacts will grow from $800 billion in 2035 to $7 trillion by 2050.

While the report does not directly address the impact on real estate, the scenarios from driverless technology it raises will clearly shake up the real estate landscape.

For one, what will people do with all the extra time? Self-driving vehicles are expected to free more than 250 million hours of commuting time per year in the most congested cities in the world.

Other highlights of future scenarios raised by a future of autonomous vehicles that could very much impact the CRE business include:

-Major impact on architecture, business design and urban planning as less space is devoted to accommodating parking facilities and roads in buildings and urban cores.
-Driverless delivery vehicles transporting goods between distribution centers and retail outlets could take much of the cost out of bridging the current ‘last mile’ challenge between retailers and consumers.
-Fast-casual dining or remote vending services could extend the reach of Starbucks or the local vegan restaurant beyond their brick and mortar locations.
-Mobile health care clinics and treatment pods, and even platooning pod hotels, vehicles could become transportation experience pods.

Auto Industry Shifting from Motown to Mountain View

While some of the future scenarios sound like science fiction, the driverless car is already here and many of the largest technology and mobility companies are already placing their bets, according to Intel.

Mercedes-Benz is already giving test rides in its app-powered F 015 Luxury in Motion research vehicle. Google has already logged about 1.3 million miles on its driverless cars in Mountain View, CA, where it is headquartered. General Motors is now testing its self-driving Bolt in Arizona. Audi, recently received a permit from California to test self-driving cars on public roads and BMW and Nissan have joined Mercedes-Benz in announcing plans to offer cars with self-driving capabilities by 2020.

This week, Apple CEO Tim Cook briefed Bloomberg on its big push into self-driving technology, which it aptly named Project Titan. Cook confirmed that Apple had initially been seeking to build its own car, but has now given that up as being overly complex and instead is focusing on developing the underlying technology and software used in future autonomous vehicles.

“There is a major disruption looming there,” Cook said.

The center of gravity in the car business may well have already shifted from Motown to Mountain View, says auto industry analyst Justin Toner.

“Taken to the extreme, I believe that autonomous cars will eradicate automobile accidents, eliminate traffic and significantly reduce the real estate dedicated to automobiles, freeing land for more productive use,” Toner says.

From a planning perspective, driverless cars are expected to increase the efficiency of roadways by traveling closer together and in narrower lanes, requiring significantly less road space than cars today. By some estimates, autonomous vehicles could support the same amount of traffic volume as error-prone, human-driven cars on one-quarter of the road space.

More Use, Less Parking

According to some estimates, cars are parked and not in use on average 95% of the time. The U.S. is estimated to have more than 800 million parking spaces, nearly four spaces for each vehicle.

If people move away from private car ownership to adopt the shared-use model, autonomous cars would likely be on the go more frequently, and require fewer parking spaces. And parking designated for autonomous cars could be located in a central area away from the core downtowns, allowing buildings to devote more space to accommodating people and less to accommodating cars.

Norman Foster, chairman and founder of the architecture firm Foster & Partners, told a crowd at a Wired Business Conference, last week that if he could design Apple’s recently constructed headquarters in Cupertino all over again, he would take into account “the changing patterns of transportation.”

Apple’s headquarters feature a massive underground garage built to hold 11,000 vehicles. Today, that’s an amenity, Foster said, but not too far in the future, it’s entirely possible that cars (and garages) will be far less important.

“Maybe the conventional garage needs to be re-thought and re-thought now,” Foster continued. “Maybe if I had a second time around I’d be putting a lot of persuasive pressure to say, ‘Make the floor-to-floor of a car park that much bigger, so if you’re not going to be filling it with cars in the future you could more easily retrofit it for more habitable space.”

Major Disruptions Also Can Be Costly

While much of the attention garnered by the autonomous driving technology is focused on the potential for good, including improved safety, greater efficiency and productivity gains, and any major disruption is also accompanied by costly and sometimes painful adjustments.

According to a recent article in Curbed, city and transportation planners are concerned over the prospect of people abandoning public transportation for the convenience of autonomous cars.

While it will take years for AV tech-driven cars to dominate the roadways, planners are concerned the convergence of autonomous vehicles, electrification and shared mobility has the potential to create a whole new wave of automation-induced sprawl without proper planning, regulations and incentives for people to keep riding buses and trains.

“Streets are 25 to 35 percent of a city’s land area… [the] most valuable asset in many ways,” Zabe Bent, a principal at transportation consulting firm Nelson\Nygaard and a speaker at the American Planning Association’s annual conference last month told the online housing site. “We need to really think about how we manage those spaces for the public good and for reducing congestion.”

Service Stations, Parking Facilities on Cutting Edge

Cleveland-based TravelCenters of America (Nasdaq: TA), the largest full-service travel center company in the U.S., also raised the issue of disruptive technologies in the energy or transportation industries to its investors.

“Various technologies are being developed in the energy and transportation industries that, if widely adopted, may materially harm our business,” the company reported. “For example, electric truck engines do not require diesel fuel and hybrid electric-diesel/gasoline engines may require substantially less diesel/gasoline fuel per mile driven. Further, driverless truck technologies may result in fewer individual truck drivers on the U.S. interstate highways and reduce the customer traffic and sales at our locations.”

And while driverless cars will still have to park somewhere, owners and operators of parking facilities are definitely on the cutting edge of this new technology.

Las Vegas-based MVP REIT, a nontraded REIT that primarily invests in parking facilities, recently added a new risk disclosure to its annual report, noting that changing lifestyles and technology innovations such as driverless vehicles may decrease the need for parking spaces, and could affect the value of its properties.

Big Picture Poses Net Gain for Real Estate

However, with the recent advent of Uber and other ride-sharing services, most owners and investors in commercial real estate see the emergence of autonomous cars as a net gain for real estate.

While zoning and transportation requirements will have to be addressed in order to realize the promise posed by AV and driverless cars, senior managers at several REITs are already bracing for the impact of the new technology.

“Driverless cars will eliminate the need for parking garages and de-urbanize our cities again,” Steven Grimes, CEO of Retail Properties of America (NYSE:RPAI) told investors last month. “Disruption is undeniably fixating. In some shape or form, all of us are discerning whether we are experiencing a normal course end of cycle disruption or the beginnings of a secular change in our space,” he added. “We think it’s both.”

“The handwriting is on the wall,” said Chris Volk, CEO of Store Capital Corp. (NYSE:STOR). “After all, we’re writing 15- to 20-year leases in a world where most pundits see the inception of driverless cars within five years.”

Link to article: Self Driving Cars & Real Estate

May

Q1 2017: San Francisco Industrial Market Report

Click here to download the full report: Q1 2017 Industrial Report

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.

May

National CRE News: Industrial Real Estate Renaissance

Source: Bisnow
By: Aswin Mannepalli
Date Posted: May 26, 2016

Online retail economics is changing the face of industrial real estate. With consumers demanding quicker and quicker delivery of online purchases (i.e. Amazon’s two-hour delivery in the Bay Area), the future demand for distributional warehouse space with modern infrastructure and design is transforming.

Click here to read the 6 Ways the Supply Chain is Changing Industrial Real Estate

Mar

San Francisco CRE News: Is the Bay Area slated for an office market slowdown?

Source: The Registry
By: Michael Hopek
Date Posted: March 21, 2016

Cushman & Wakefield regional director Robert Sammons forecast mixed housing and office markets for the next five years during a recent industry meeting of Bay Area real estate developers, investors, builders and lawers, expressing his concern that changes are needed if San Francisco is to continue growing.

The meeting of the San Francisco Real Estate Roundtable was presented by law firm Hanson Bridgett and dealt with the question of how long San Francisco’s real estate market boom could last. Sammons started the meeting by asking “How is everyone feeling about the economy right now?” The majority of audience members was undecided on the question, with a few skeptical about a positive economic future.

Sammons pointed out that the Bay Area is in its seventh year of expansion. “It’s about time for a downturn of some sort, whether that’s a correction or recession, that remains to be seen,” he said. San Francisco is in the top 10 cities for job growth, while San Jose is number one according to Cushman & Wakefield’s research.

The massive job growth due to the expansion of the technology industry has caused an influx of labor on a grand scale, he explained. From 2012 to 2015 the Bay Area population increased by almost 400,000 largely because of new technology-related labor growth. In the same time period the Bay Area added about 30,000 multifamily units, one for about every 13.5 people, meaning the region is dramatically lacking in housing growth.

Sammons stressed that this deficit is the real problem for residential housing in the city. “We are a mile behind in trying to build housing in this market,” he said. There are currently 21,000 units under construction and about another 53,000 proposed according to his company’s research.

The influx of jobs has impacted the office market, as well. That, Sammons said, makes it difficult for businesses to find affordable office space. Last year the city added 21,600 new office space positions at a growth rate of 5.6 percent. About 60 percent of the tenants in the office market are technology firms.

Of those technology businesses that lay off people because of poor company performance, some wind up putting space on the market to save money. Sammons said there is 1.9 million square feet of space available in the San Francisco market for sublease. There is currently 7.1 million square feet under construction or entitled in the city.

Sammons noted the impact of Proposition M, the1986 law that limits San Francisco’s office space development to roughly 875,000 square feet a year. Over time the city has built up a reserve of 1.8 million square feet in the city’s allocation fund, but that reserve is nearly gone. “We are going to be out of allocation this year, plain and simple,” he said.

Cushman & Wakefield forecasts that city office vacancy rates will continue to increase every year through 2021. Sammons suggested that the 9.9 percent office vacancy rate forecast is “not that bad.” The firm also predicts job growth to slow due to the high cost of living and renting office space, and the city’s inability to keep up with tenant housing demand.

Sammons concluded the presentation by stating that companies might start looking elsewhere for rental space in cities like Austin, Salt Lake City or eastern coastal cities. “It’s just too expensive to live here. So unless something changes, unless we are able to build more housing and pull back on price points, this is the pretty standard forecast,” he said.

Link to article: SF Office Slowdown

Jan

San Francisco Year-End 2015 Industrial Real Estate Summary

Source: CoStar Year-End 2015 Industrial Report

The San Francisco Industrial market ended the fourth quarter 2015 with a vacancy rate of 3.2%. The vacancy rate was down over the previous quarter, with net absorption totaling positive 383,017 square feet in the fourth quarter. Vacant sublease space decreased in the quarter, end- ing the quarter at 245,799 square feet. Rental rates ended the fourth quarter at $18.60, an increase over the previous quarter. There was 408,797 square feet still under construction at the end of the quarter.

Absorption

Net absorption for the overall San Francisco Industrial market was positive 383,017 square feet in the fourth quarter 2015. That compares to negative (537,118) square feet in the third quarter 2015, positive 51,907 square feet in the second quarter 2015, and negative (8,761) square feet in the first quarter 2015.

The Flex building market recorded net absorption of positive 124,445 square feet in the fourth quarter 2015, compared to positive 526 square feet in the third quarter 2015, positive 165,145 in the second quarter 2015, and positive 5,888 in the first quarter 2015.

The Warehouse building market recorded net absorption of positive 258,572 square feet in the fourth quarter 2015 com- pared to negative (537,644) square feet in the third quarter 2015, negative (113,238) in the second quarter 2015, and negative (14,649) in the first quarter 2015.

Vacancy

The Industrial vacancy rate in the San Francisco market area decreased to 3.2% at the end of the fourth quarter 2015. The vacancy rate was 3.6% at the end of the third quarter 2015, 3.3% at the end of the second quarter 2015, and 3.8% at the end of the first quarter 2015.

Flex projects reported a vacancy rate of 3.4% at the end of the fourth quarter 2015, 4.0% at the end of the third quarter 2015, 4.2% at the end of the second quarter 2015, and 5.4% at the end of the first quarter 2015.

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

Sublease Vacancy

The amount of vacant sublease space in the San Francisco market decreased to 245,799 square feet by the end of the fourth quarter 2015, from 337,620 square feet at the end of the third quarter 2015. There was 339,249 square feet vacant at the end of the second quarter 2015 and 333,754 square feet at the end of the first quarter 2015.

San Francisco’s Flex projects reported vacant sublease space of 54,864 square feet at the end of fourth quarter 2015, down from the 159,121 square feet reported at the end of the third quarter 2015. There were 164,850 square feet of sublease space vacant at the end of the second quarter 2015, and 186,108 square feet at the end of the first quarter 2015.

Warehouse projects reported increased vacant sublease space from the third quarter 2015 to the fourth quarter 2015. Sublease vacancy went from 178,499 square feet to 190,935 square feet during that time. There was 174,399 square feet at the end of the second quarter 2015, and 147,646 square feet at the end of the first quarter 2015.

Rental Rates

The average quoted asking rental rate for available Industrial space was $18.60 per square foot per year at the end of the fourth quarter 2015 in the San Francisco market area. This represented a 4.4% increase in quoted rental rates from the end of the third quarter 2015, when rents were reported at $17.82 per square foot.

The average quoted rate within the Flex sector was $30.14 per square foot at the end of the fourth quarter 2015, while Warehouse rates stood at $14.19. At the end of the third quarter 2015, Flex rates were $28.44 per square foot, and Warehouse rates were $13.71.

Deliveries and Construction

During the fourth quarter 2015, no new space was completed in the San Francisco market area. This compares to 0 buildings in the previous two quarters, and 118,080 square feet in three buildings completed in the first quarter 2015.

There were 408,797 square feet of Industrial space under construction at the end of the fourth 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 fourth quarter 2015 were The Cove Building 3, a 153,047-square-foot building with 50% of its space pre-leased, and The Cove Building 4, a 140,053-square-foot facility that is 0% pre-leased.

Sales Activity

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

In the third quarter, seven industrial transactions closed with a total volume of $51,564,100. The seven buildings totaled 289,631 square feet and the average price per square foot equated to $178.03 per square foot. That compares to 11 transactions totaling $88,245,000 in the second quarter. The total square footage was 423,420 for an average price per square foot of $208.41.

Total year-to-date industrial building sales activity in 2015 is down compared to the previous year. In the first nine months of 2015, the market saw 35 industrial sales transactions with a total volume of $320,599,100. The price per square foot has averaged $202.49 this year. In the first nine months of 2014, the market posted 40 transactions with a total volume of $365,813,100. The price per square foot averaged $214.70.

Cap rates have been lower in 2015, averaging 4.34%, compared to the first nine months of last year when they averaged 6.46%.

Link to full report: Q4 Costar

Jan

National Industrial CRE 2016 Outlook

Bigger Panama Canal, Increasing E-Commerce Expected to Drive Industrial Markets in 2016
Logistics/Distribution in a Period of Rapid Transition

Source: CoStar News
By: Mark Heschmeyer
Date Posted: December 29, 2015

There are two primary obsessions dominating the outlook for industrial markets in 2016: the much-anticipated spring opening of the $5.25 billion expansion of the Panama Canal (Panamax); and the impact e-commerce is having on logisitics networks.

The effects of both already have begun reshaping U.S. industrial markets, and those effects are expected to accelerate in 2016.

“Industrial distribution is in a period of transition,” said George Livingston, chairman emeritus of NAI Realvest in Orlando. “It will end with a mix of bigger buildings, like Amazon properties, and smaller more close-in, last mile properties. Design will change. Outmoded buildings will be redeveloped. Warehouses will become part of retail mixed-use developments.”

“Sales volume and price will continue to increase — as will rents. Some markets have to catch up,” added Livingston.

8 Years of Waiting Ends in Spring

The effects of the Panamax expansion, which will allow for the doubling of the size of the ship that can pass through the canal, have already impacted coastal U.S. markets. The average sale price of warehouse and distribution facilities along the U.S. coast has risen 50% in the last five years. Annual sales volume for those same properties has nearly tripled in that time, and they have added nearly 46 million square feet of new space in the last two years.

The downside to all of that new development is that net absorption has totaled a negative 40 million square feet in that time and the vacancy rate for warehouse distribution space has jumped to about 33%.

Still, the anticipated boost in international trade from Panamax here in the U.S. has sent average asking rents for industrial property up in coastal markets by 20% over the last five years.

The widening of the Panama Canal is now 96% complete and the opening of the new channel to large cargo vessels is scheduled this spring. Improved shipping times to East Coast markets as a result of the expanded canal is expected to chip away at the value advantage currently offered by cross-country rail shipments from West Coast markets, concluded a CoStar study of the expected impact of the canal expansion on seaport real estate completed in 2012.

Transportation costs by ship, train, or truck, are in constant flux and vary widely depending on the route and time of year. They can also be influenced by supply and demand, as well as factors like fuel costs.

However, whether the increased investment in coastal industrial property markets will pay off could begin to be seen this year. But they are in no ways sure bets.

Monmouth Real Estate Investment Corp. this month acquired a new 175,315-square-foot industrial building at 450 Northpointe Court in Covington, LA, for $18.4 million. The property is net-leased for 10 years to FedEx Ground Packaging System. Louisiana marks a new territory for Monmouth, which purchased the property for its proximity to the Port of New Orleans, the fifth-largest port in the U.S., and one largely expected to benefit from Panamax.

Monmouth’s chairman, Eugene Landy, has long sounded the benefits of the Panama Canal expansion. “We just think it’s going to be a game changer,” Landy said in his quarterly earnings conference call last month.

“If you double the size of the ship, you increase the cost of operations by only 50%. So you’re getting bigger and bigger ships that are going through an expanded canal, and they’re going to go to the Gulf Coast. They’re going to go to the East Coast,” Landy said. “Frankly when you take areas like New Jersey, I have no idea where they’re going to put all that merchandise. There’s going to be a tremendous shortage of warehouses when those ships start arriving.”

Denny Oklak, chairman and CEO of Duke Realty, isn’t quite as heady on the immediate prospects for industrial property owners.

“Clearly we think it’s going to be beneficial for the Eastern Seaboard markets, and I would also include the Gulf markets, like Houston,” Oklak said in his latest earnings conference call. “But we think the impact is going to be very slow to take place. I don’t think you’ll see really meaningful movement across the Eastern Seaboard for potentially upwards of 10 years.”

Because they involve the whole logistic supply chain network, Oklak said companies do not make changes overnight.

“You’re talking about changes in rail lines, trains and changing in trucking and distribution, new facilities being built,” Oklak said.

Executives at First Industrial Realty Trust also were of a mixed mind. On one hand, they said they felt like a lot the adjustments to industrial space demand have already happened. At the same time, the lowering of transportation costs to goods coming to the U.S. means consumers can buy more, which can only benefit industrial real estate space in the long run.

Consumer Shopping Behavior Changing Industrial Markets

The impact from consumer shopping behavior beginning to migrate online is reaching all inland and coastal industrial markets.

Although e-commerce as a percentage of total retail sales is still small, it continues to increase. Mobile commerce (M-commerce) is also still in its infacy, but it too is increasing. As a result, many retailers are reducing their store footprints and, in some cases, offering showrooms for customers to browse and order their products for shipment.

“This is a big part of the reason why industrial demand continues to outstrip supply in many regions,” said Matthew Dolly, director of research for Transwestern based in Northern New Jersey. “As a result, developers continue to seek land opportunities and where land is scarce or too high-priced, some builders will continue seek redevelopment opportunities in functionally obsolete properties of any type.”

Port markets in the Northeast are expected to benefit from both Panamax because of increased shipping to the Eastern Seaboard and their proximity to major population centers and the retail demand that generates, with the Port of New York and New Jersey being an obviosu example. But even inland ports are benefitting, said Dolly.

Shipping traffic is slated to double at the Port of Albany after the Empire State Development Corp. awarded the port a $4 million grant to construct a heavy-lift cargo operations building that will allow for the movement of intermodal cargo.

The Rosenblum Cos. in Albany, NY, is pursuing approvals from the nearby Town of Bethlehem for a 120,000-square-foot industrial park that will feature three modern, high-bay warehouse buildings.

“Industrial vacancies in our market are at historic lows and much of the product reflected in the statistics is outmoded, so the market is hungry for modern warehouse and distribution facilities,” said Seth D. Rosenblum, CEO of The Rosenblum Cos. “We’ve been eyeing the area near the Port of Albany as an industrial expansion opportunity. Albany’s port is the northernmost inland port open to traffic year-round and serves as an alternative to the NYC-area ports.”

Evergreen Industrial Properties in Dallas is also seeing a significant increase in leasing velocity at industrial assets with infill locations.

“Today’s light industrial users, many with an existing e-commerce component to their business model, are focusing on proximity to the metro population core,” said Graydon L. Bouchillon, head of acquisitions for Evergreen. “As the revival of urban living across the U.S. strengthens, we’re seeing light industrial tenants place emphasis on locations that have the ability to meet consumer demand for same-day and next-day delivery. 2016 will be the year that the need for a viable ‘last mile’ solution moves to the forefront for many light industrial users.”

Dec

San Francisco CRE News: Potrero Hill industrial site to become new “maker” hub

Source: San Francisco Business Times
By: Cory Weinberg
Dated Posted: December 10, 2015

An acre of warehouses, sheds and gravel bunkers near the base of Potrero Hill could become home to San Francisco’s next hub of “maker” and tech office space, according to city filings.

The San Francisco Gravel Co. is in early talks with the Planning Department about whether its sprawling South of Market property at 552 Berry St. would qualify for the city’s 2014 legislation incentivizing the new construction of manufacturing space by allowing more lucrative offices on underutilized land.

It would be the second project to take advantage of the legislation now that Kilroy Realty Corp. is starting to develop 100 Hooper nearby with two-thirds slated for office use and one-third for “production, distribution and repair.” That’s a zoning designation reserved in part for manufacturing and light industrial companies that typically can’t afford high rents.

The Berry Street property is zoned for PDR and could not see offices rise on the site without the 2014 legislation.

“Based on an investigation of the property’s permit history and informal interpretation by the Planning Department staff, this property does indeed qualify under the criteria for the legislation. Further, it meets the purposes of the legislation in that SF Gravel Company had a very low employment density,” according to a letter to the city penned by consultant Badiner Urban Planning.

The gravel company, which has inhabited the property for nearly a century, also has tapped developer SKS Investments to study the site, according to the “zoning determination” letter sent to the Planning Department. It’s unclear how large the development would be if proposed.

SKS is accustomed to turning former industrial spaces into tech office beacons. The San Francisco-based company recently redeveloped the historic McClintock building – formerly used to manufacture dresses – and leased it up to biotech firm Invitae for laboratory use. It also transformed the former jewelry at 888 Brannan St. into office space for Airbnb.

Dan Kingsley, a managing partner for SKS, said “our plans are not firm” and declined to comment further.

San Francisco’s South of Market area could begin to see several office developments attached to new manufacturing spaces. Not only is Kilroy building a major property, but the city is planning to require some PDR in new large office developments under next year’s Central SoMa rezoning plan.

Until now, new PDR space has typically been economically infeasible to develop because of the law rents it generates. However, the 2014 legislation permitting office development to help fund PDR space is starting to change that.

In addition, the city has seen the rise of manufacturing companies with venture capital backing – creating a class divide with more typical ‘makers.’ That trend has concerned the like of SF Made, the influential advocacy group that will develop ‘maker’ space at 100 Hooper.

Link to article: Maker Hub coming to Potrero Hill

Nov

Bio Tech News: 800,000 Square Foot Development Coming to South San Francisco

New Owner of high-profile Peninsula Tower aims to take biotech to new heights

Source: San Francisco Business Times
By: Ron Leuty
Date Posted: November 19, 2015

Emerging biotech companies are fighting a losing battle for space against deep-pocketed, aggressive tech companies. But Neil Fox expects to deliver a new life sciences option by this time next year.

Fox’s Phase 3 Properties Inc. closed Tuesday on its acquisition of the high-profile Centennial Towers project, nestled between San Bruno Mountain and Highway 101 in South San Francisco.

The developer plans to immediately convert part of the existing 12-story tower for biotech companies by the third quarter of 2016, then start construction of a 21-story, 400,000-square-foot biotech-centric structure to the immediate north that would come online in the second half of 2017.

The overall 800,000-square-foot development’s sale price wasn’t disclosed.

In a tight market for biotech labs/offices, Fox believes Phase 3’s focus on ready-to-occupy highrise space will be a winner. The vacancy rate for new biotech space in South San Francisco is in the low single digits, not counting a half-million square feet of sublease space held by Amgen Inc. (NASDAQ: AMGN).

If nothing else, Phase 3’s timing is impeccable: Space in the two-building, 253,000-square-foot first phase of HCP Inc.’s (NYSE: HCP) The Cove at Oyster Point already is booked for its third-quarter 2016 opening.

By the time, Phase 3’s 150,000-square-foot south tower upgrades for biotech will be ready, Fox said, and construction will be under way on the north tower.

Two other South San Francisco biotech projects entitled for roughly 3 million square feet — BioMed Realty Trust’s (NYSE: BMR) Gateway of Pacific and Shorenstein/SKS Properties’ bayside project — haven’t yet broken ground.

Centennial Towers developer Jack Myers earlier this year considered building the planned north tower as condominiums. But Fox, whose San Diego company focuses exclusively on life sciences, said the future is in biotech.

“Our research says there’s a need across the board. That’s why QB3’s incubators (in San Francisco and Berkeley) are so full,” Fox said. “There’s no real second-generation space on the market right now.”

Indeed, a number of young and emerging life sciences companies — as well as larger, growing companies — are in a critical search for space.

Buoyed by a renewed interest by venture capital firms in early-stage drugs, those companies are bringing on more staff to push experimental treatments into studies in humans, but they often lose the space race to larger, established tech or drug-development companies that can lease floors at a time.

“We need the space last month, not a year from now,” said Ken Horne, CEO of Symic Biomedical Inc., a 17-person, two-year-old company with one potential treatment in an early-stage clinical treatment and another set to start in the first half of next year. “A year is hard for a high-growth, high-momentum startup.”

Symic is housed in the University of California-related QB3@953 life sciences incubator in San Francisco’s Dogpatch neighborhood.

But Fox’s excitement about Centennial Towers isn’t based on timing alone: The development will offer biotech companies a high-rise option they don’t otherwise have in the Bay Area, he said, as well as space that needs a minimum of work for a quick move-in.

The Cove from HCP and the Gateway of Pacific project from BioMed, which is being acquired by Blackstone Group, have played up their tech-like campuses and amenities such as a bocce ball court and walking trails. But Fox said Phase 3’s differentiator with Centennial Towers is the high rise option that rarely is offered biotech companies outside of high-cost, high-density markets such as New York and Boston.

Working with San Diego’s McFarlane Architects, Phase 3 has floor plans that Fox said work for 95 percent of biotech companies. The space is a mix of 60 percent office and 40 percent general biology and chemistry labs — all with natural light.

Skidmore, Owings & Merrill LLP, the architect for Centennial Towers’ unique glass-facade south structure, also is designing the north tower.

“There’s no buried space in our buildings,” Fox said. “The quality of the project, the detail that went into it (by Myers), was something that was very attractive to us.”

Link to article: Peninsula Biotech

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