Bay Area tops U.S. in new office space, but lags in housing starts

 The Bay Area is a hot place to build cubicles, conference rooms, and office suites. But don’t look for as many hammers pounding out new homes, condos, and apartments.

The region is expected to open 18.2 million square feet of office space in 2018 — tops in the nation and more than New York City and Dallas combined — while home, condo and apartment building has grown only modestly.

More work space, more jobs and more people chasing a limited supply of homes is expected to add more steam to the pressure cooker of the Bay Area housing market.

“It’s encouraging that so many respected employers are investing in Bay Area jobs and immigration growth” said Carl Guardino, CEO of the business-backed Silicon Valley Leadership Group. “But we all recognize that jobs need a place to go home and sleep at night.”

The region created six times as many jobs as housing units between 2010 and 2015, according to a study by the leadership group and the Silicon Valley Community Foundation. The increased housing pressure has forced lower-income workers out of the region at much faster rates than higher paid workers, even as jobs go unfilled.

The run up in commercial development is led by major office openings in the South Bay, according to a survey from real estate data company Yardi Matrix. The big projects in 2018 include the official, complete opening of the 2.9 million square foot Apple Park in Cupertino, Park Tower at Transbay and The Exchange on 16th in San Francisco totaling 1.5 million square feet, and Facebook’s MPK 21, a half-million-square-foot campus designed by Frank Gehry in Menlo Park.

Other major developments underway include the Voyager property developed by Nvidia in Santa Clara, Microsoft and Google projects in Mountain View, the Stoneridge Mall Road project in Pleasanton, and Moffett Towers in Sunnyvale, according to Yardi Matrix.

The real estate data firm estimates that commercial openings in Santa Clara County are up 6.5 percent over the same period last year. The San Francisco and Oakland metro has seen three times as much commercial space open up this year compared to last year.

 

 

Read more on The Mercury News

 

 

Crane Watch update: More than 22,000 residential units have flooded into San Jose’s development pipeline

More than 22,000 new residential units have been proposed in the city of San Jose — the largest city in the housing-starved Bay Area — according to city records and Business Journal reporting over the past year.

Those number have been gathered over the past year and a half and detailed in the Silicon Valley Business Journal’s Crane Watch map, which is a compilation of every large development project that has arrived at the San Jose city hall.

When the Silicon Valley Business Journal’s Crane Watch map launched in 2017, it detailed 30 of the biggest projects in San Jose. But a little more than a year later, the number of projects we’re tracking has ballooned to 107 proposals. These include developments that are anywhere in the city’s development pipeline, from an early vision submitted to the city for feedback all the way to a recently completed structure.

Crane Watch shows industrial, office, residential, hotel, health care, education, retail and mixed-use proposals, and active projects that are 90,000 square feet in size or larger throughout the city of San Jose.

Read more on Silicon Valley Business Journal

 

 

 

Apartment rentals make up a larger share of new housing units in the U.S. than they have in decades

New preferences, low affordability of new homes drive greater demand for apartment rentals.

Apartment rentals have been luring residents away from other kinds of housing since the housing crash—and that is not likely to change in the foreseeable future.

“Apartments should continue to play a role in the total housing market that goes beyond the historical norm,” says Greg Willett, chief economist for Real Page Inc., a property management software and services provider based in Richardson, Texas.

In the years after the Great Recession, millions of people lost homes to foreclosure and had to move, often into apartments. The extra demand for units was not expected to last more than a few years. However, today—more than a decade after the collapse of Lehman Brothers—the percentage of American households that own their own home is still near its low point. New households are still much more likely to chose to live in rental housing than in the years before the crash.

 

 

Read more on National Real Estate Investor

 

 

 

The 10 top emerging trends that will shape real estate in 2019

The Urban Land Institute’s annual look at the year ahead focuses on technology and transformation at an uncertain moment.

It’s complicated. In the course of compiling its annual Emerging Trends report, the Urban Land Institute found that the only certainty in its outlook for 2019 was uncertainty. Expert analysis points to a more complex, multi-layered series of overlapping trends, with unpredictable results, as opposed to a few strong narratives.

Will technology offer more opportunity and enhance competition and efficiency, or help consolidate the industry and drive out smaller players? How will shifts in demographics and shopping patterns challenge current investment practices? Will the U.S. ever get a grip on its housing affordability issues?

The report, a joint project of ULI and PricewaterhouseCoopers researchers unveiled during its fall meeting in Boston this afternoon, considered the responses of more than 750 real estate professionals in creating an high-level overview of the trends it believes will impact the real estate world. While the report expects an overall economic slowdown next year, emerging trends and markets in flux that could provide new opportunities.

 

 

Read more on Curbed

 

 

 

Making heads or tails of the U.S. multifamily sector

If you were to focus solely on the slowing pace of rent gains, burgeoning supply and the rise in interest rates, you might assume that the real estate market isn’t in a strong place right now.

But despite all of the above, the multifamily market is in a healthy position. Demand is being driven by encouraging demographic shifts and a strong economy. Despite moderating elements, because the economy is healthy, the apartment market is similarly healthy, even if the boom from earlier in this economic cycle has tapered off.

GDP growth came in at 2.3% for the year in 2017, and a whopping 4.2% in Q2 2018. Consumers are buying confidently provided that tax cuts will improve yearly income even despite stagnant wage growth. Our multifamily clients are anticipating that U.S. rent growth should maintain its current pace, largely thanks to cities in the South and West, where supply hasn’t outpaced demand.

According to the Spring 2018 Yardi Matrix U. S. Multifamily Outlook report, given the state of supply and demand in most metro areas and the steady economy, rents are projected to increase by 2.9% nationwide this year, with heavy concentration in late-stage southern and western U.S. markets. However, concerns about affordability are keeping prices from rising at an exceptionally fast rate, and new supply is also helping to keep those costs level. As for the supply, completions are expected to maintain the same steady pace they have over the past few years. Absorption rates are anticipated to remain strong for the remainder of the year, and 290,000 additional units are expected to finish construction by 2018, resulting in a 2.2% increase of stock. Another big factor that’s supporting the real estate market is the steady flow of capital pouring into the industry.

 

 

Read more on Forbes

 

 

 

San Francisco landlords warm to the power of pop-ups

As San Francisco rents continue to soar, retailers have become hesitant about committing long-term to brick-and-mortar space. One solution: popping in temporarily.

Landlords once scoffed at the deals shorter than the typical 10-year term. But as tenants become increasingly wary of San Francisco’s rising rents and shifting retail climate, many are realizing the benefits of shorter leases may outweigh the drawbacks.

The Bay Area has been a landing pad for tenants looking to test the market, but hesitant to commit to long-term deals.

Union Square in particular has been home to temporary deals with online luxury consignor the RealReal, the Kylie Jenner cosmetics pop-up and the Museum of Ice Cream, which recently decided to make its temporary installation a permanent San Francisco fixture.

 

 

 

Full article on San Francisco Business Times

 

 

UC Berkeley professor blames rent control for California’s housing shortage

Kenneth Rosen hopes to sway voters against Proposition 10.

Kenneth Rosen, a UC Berkeley economist and real estate consultant, published a paper Wednesday titled The Case For Preserving Costa Hawkins, in hopes of swaying voters against Proposition 10.

Proposition 10, which will go before voters in November, would repeal the 1995 Costa-Hawkins Act, a state law that severely curtails rent control in California cities. For example, under Costa-Hawkins, only San Francisco apartments built before 1979 may be subject to rent control.

Passing Proposition 10 would not in and of itself create any new rent control housing, but it would allow cities to expand rent control stock for the first time in decades if they so choose.

Rosen, however, argues that turning the clock back to 1994 will stifle new housing and drain apartment stock.

 

Read more on Curbed SF

 

What retail apocalypse? Ask some department stores, but not all

Adapt or die isn’t just a tenet of evolution: It’s also the reality faced by the U.S. department-store industry. And some are doing it far better than their rivals.

Although the chains are often lumped together with other mall mainstays when lamenting the “retail apocalypse,’’ this past week’s earnings reports underscore just how different department stores’ strategies are amid a wider brick-and-mortar slowdown.

Nordstrom Inc., for instance, posted same-store sales that were almost four times higher than expected after drawing in buyers for both its full-priced and discounted merchandise, powered by a massive anniversary sale. At the other end of the spectrum, CEO-less J.C. Penney Co. saw its stock plunge to historic lows as it put more items on clearance to get rid of excess inventory. And for Macy’s Inc., which beat virtually every estimate set by the market but still disappointed investors, it seems the jury’s still out.

“If you’re not doing well now, you’ll have a hard time when thing slow down,” said Ivan Feinseth, chief investment officer at Tigress Financial Partners. “Right now, we have a 50-year low level of unemployment, you have a consumer that’s flush, a stock market at record levels, a strong housing market and easy and low-cost credit. So you have the Goldilocks environment, or the perfect environment, for the consumer.”

 

 

Read more on Bloomberg

 

 

 

Getting downtown ‘right’ in San Jose has been a trial-and-error process

The plan for San Jose’s downtown is years old. What’s new is that Google has bought into that vision.

The critical challenge of getting things right in the next iteration of downtown San Jose has been a hot issue at least since the 1980s, when downtown was torn up and many businesses suffered and died during construction of the Valley Transportation Authority’s light rail system.

Downtown’s future was a central focus of the thousands of people who participated in the four years of work that in 2011 produced the city’s latest general plan, Envision San Jose 2040, that anticipated Diridon’s status as a transit hub amidst 40,000 new jobs.

“This is not a novel idea we just came upon because Google came around last year,” Mayor Sam Liccardo said.

Kim Walesh, San Jose’s deputy city manager and economic development director, said the plan always envisioned “having an anchor developer who would do a cohesive master planned development in that central area.”

That doesn’t mean, however, that latest round of planning efforts and community engagement sparked by Google’s development announcement last year has pleased everyone who will be affected by what happens around Diridon.

 

 

Read more on Silicon Valley Business Journal

 

 

 

Tech tenants continue to compete for limited Silicon Valley office space

The Silicon Valley office market continues to perform well, with tech tenants quickly grabbing up space, particularly larger blocks that are hard to come by in the tight market.

The recent 274K SF lease by Roku at Coleman Highline reflects the strength of the San Jose market. Google’s plans for an 8M SF campus in San Jose have driven a lot of activity in that city’s downtown.

But even beyond a bustling San Jose, the greater Silicon Valley office market has had strong fundamentals for the first half of the year, according to Savills Studley.

In Q2, there was more than 2.6M SF of office leased in Silicon Valley, adding up to 5.8M SF leased in the past 12 months, Savills Studley reports. Availability in the core markets of Menlo Park, Palo Alto and Sunnyvale/Cupertino remains in the single digits, while the region’s overall availability has decreased to 15.8%, down 130 basis points from a year ago.

At the same time, rents are rising, reaching $50.94 overall asking rent for the region in Q2, up 4%. Class-A rents were up 1.7% to $52.51. Tech tenants continue to drive the market.

 

Read more on Bisnow Silicon Valley