Bay Area markets rank in top 5 for most expensive office space in the Americas

Downtown San Francisco and the Peninsula rank #3 and #4 for the most expensive commercial office space on the continent, according to Globe Street and CBRE. For Q1 2019, the cost per square foot per year for prime office space downtown was $130.51, with office space in the Peninsula costing an average of $116.28 per year. New York City still holds the top two slots, with the Midtown-Manhattan and Midtown-South Manhattan markets, and Boston’s Downtown is just behind the Peninsula at $106.60 per sq. ft. per year.

Office space costs in the Americas continue to rise, 3.7% higher than Q1 of last year, and they’re rising faster; Q1 2018 was only 3.2% more expensive than the previous year. Globally, rents for prime office space rose 3.6% compared to 2.5% the year before.

The most expensive office markets worldwide are Hong Kong Central, at $322; London’s West End at $222.70; and Hong Kong Kowloon at $208.67 per sq. ft. per year. Downtown San Francisco and the Peninsula rank 11th and 13th, behind Beijing’s Finance Street, Beijing’s Central Business District, Tokyo, and the City of London.

San Jose and Oakland challenge SF in private equity real estate market

California’s largest cities for real estate investment, San Francisco and Los Angeles, are now being challenged by San Jose and Oakland. California holds almost 20% of the private equity real estate (PERE) in the country and 12% of global PERE assets under management, according to a study by accounting and advisory firm EisnerAmper and Preqin. PERE properties include office buildings (high-rise, urban, suburban and garden offices); industrial properties (warehouse, research and development, flexible office/industrial space); retail properties, shopping centers (neighborhood, community, and power centers); and multifamily apartments (garden and high-rise). Less common but still an option are senior or student housing, hotels, self-storage, medical offices, single-family housing to own or rent, undeveloped land, and manufacturing space (via Investopedia). 

So how do the Bay Area cities compare?

San Francisco’s strength is in its office market, with $3.2 billion PERE deals in 2018 (a $1 billion increase over 2017) and another $1 billion already invested this year as the Bay Area’s largest tech companies continue to expand. The overall PERE total for last year was $4 billion,down from $4.8 billion in 2017; according to an article in the San Francisco Business times, “the drop-off in the quantity of large mixed-use transactions compared with recent years is at the heart of the decrease.” San Francisco is also running out of space, which limits growth.

While San Francisco is still the largest market for office transactions in the Bay Area, San Jose is leading in growth. Their office transactions in 2017 and 2018 both reached $1 billion, with a record in 2018 at $1.2 billion. In Q1 of 2019 alone, these transactions reached $500 million, putting San Jose on track to quadruple its PERE deals this year. The overall PERE total for 2018 was another record of $2.7 billion, almost 60% more than 2017 and a sharp contrast to San Francisco. 

Oakland may be emerging as a competitor, with more reasonable housing options for tenants; the tech company Square announced at the end of last year their intent to move 2,000 employees into an Oakland office. Even as a smaller city, it is on track to reach a total of $1 billion in PERE deals this year, with $560 million in Q1 2019 already; $493 million of that was just two office space deals by Starwood Capital Group. The city also has more Opportunity Zones than either of the other two cities.

With San Francisco as the “benchmark,” San Jose as the “growth leader,” and Oakland as the “up and comer” (according to the SF Business Times), all three cities are going strong.

Source: SF Business Times

 

Tech booms, but small retail struggles in Silicon Valley

While Silicon Valley’s tech sector is thriving, cranking out IPOs and flooding the region with high-paying jobs, its retail industry is struggling to keep its boutiques and tiny mom and pop shops open.

The number of retail businesses — particularly small retail businesses — has dropped significantly in the Bay Area between 2007 and 2017, according to data from the state Economic Development Department. Experts blame a host of factors, including high rents, increased competition from online vendors, a rising minimum wage and increased health care costs.

The average rent per square foot for retail space in San Jose increased nearly 9 percent between 2015 and 2017. It also rose 9 percent in Oakland, and in San Francisco, it inched up almost 5 percent. Even incremental rent hikes can cause trouble for small businesses, which often operate on a thin profit margin.

At the same time, Bay Area home prices and rents have become so expensive that many local retail workers can no longer afford to live near their jobs, forcing them to commute long hours or quit.

Read the full article on The Mercury News

Read our June 11, 2019 newsletter

What are San Francisco’s plans for Mid-Market?

 Mid-Market’s vacancies, stalled developments trigger plants to activate dormant sites.

Stalled developments have meant boarded-up walls, vandalism and empty storefronts have become all too common along the upper stretch of Market Street. The city is hoping a new type of temporary permit will spark change.

Read more on NAI Northern California’s newsletter

What are the Golden State Warriors’ latest plans for Downtown Oakland?

Warriors won’t practice in Oakland next season but will leave downtown facility in hands of youth programs.

The Golden State Warriors announced Monday they won’t stick around to practice in their downtown Oakland basketball facility next season as they make their move to the under-construction Chase Center in San Francisco’s Mission Bay neighborhood a complete one. But that doesn’t mean the Warriors are totally abandoning the city that’s been their physical home — if not their namesake — for almost half a century.

Read more on East Bay Times

How would San Francisco’s proposed fees on empty storefronts affect retail and mixed-use properties?

This week the San Francisco Board of Supervisors will vote on whether to require owners of vacant storefronts unoccupied for more than 30 days to register their properties and pay an annual fee. This is one of the proposals they are considering to get a better idea of and start to remedy the glut of unused storefront space around the city.

Read more on Curbed San Francisco

Transit-oriented development changing how Oakland grows

When it comes to the future of Oakland, a good amount of the development that will change the city has one thing in common: the transit station nearby. 

Bay Area Rapid Transit has committed to an ambitious plan to build mixed-use transit-oriented developments around its stations throughout the Bay Area, and a number of those projects will be in Oakland.

Already, the transit authority has started to transform land around MacArthur Station in the northern part of the city as well as Fruitvale Station to the southeast. Construction is underway on Coliseum Transit Village from UrbanCore Development and Oakland Economic Development Corp.

Future plans call for continued development on those sites and projects to go up around downtown BART stations.

BART’s transit-oriented development policy states that the agency will only move forward with future developments in cities that have adopted station area plans, and Oakland has been at the forefront, BART’s Sean Brooks said. Brooks, the department manager of real estate and property development for BART, will speak about TODs at Bisnow’s The Evolution of Downtown Oakland March 13.

Projects already underway have required upzoning, and the city also has been progressive about parking requirements, Brooks said.

“The city has kind of bent over backwards to help and advance some of these projects,” he said.

Case in point: the planned development for West Oakland, which got through the planning commission in record time, he said. The project was helped along in no small part because of the affordable housing it is bringing to the city.

 

Read more at Bisnow Oakland

 

Silicon Valley has the highest housing costs in the U.S.

Report says both incomes and costs soaring in the state’s tech capitol.

It’s the best of time and the worst of times in Silicon Valley, at least according to Joint Venture Silicon Valley, a regional think-tank that issued its annual Silicon Valley Index last week.

The 2019 index, a “comprehensive report based on indicators that measure the strength of our economy and the health of our community,” describes the Valley as materially successful but fundamentally anxious, as new wealth puts additional stress on those most vulnerable.

The report defines Silicon Valley as a broad region encompassing parts of Santa Clara, San Mateo, and Alameda Counties, ranging from Daly City to Union City to Gilroy to Scotts Valley.

The index includes some data from San Francisco for context but does not include the city as part of its larger regional definition. Most of the data covers 2017, with some references to 2018 as well.

 

Read more at Curbed SF 

 

 

Developers claim co-living suites earn more per square foot than regular apartment rentals

Co-living developers in New York and Washington, D.C. report strong demand from renters.

Hundreds of co-living suites are renting quickly at ALTA LIC, a new high-rise apartment building in Long Island City, Queens.

“We are now about four months ahead of our expected pace,” says Christopher Bledsoe, co-founder and CEO of Ollie, the company managing the ALTA’s co-living apartments.

Companies like Ollie are proving that there is plenty of renter demand for co-living arrangements. The co-living spaces at ALTA are now earning more dollars per sq. ft. than the new conventional apartments in the same building. Other operators of co-living properties also report strong results at their projects.

“We can only speak to performance of our OSLO properties… and they have been exceptional,” says Martin Ditto, CEO of Ditto, a company that operates three fully-occupied co-living properties in the Washington, D.C. metro area, and is now planning to open a fourth.

Strong rents prove demand for co-living

“Co-living” is a living arrangement in which the residents share some aspects of their living spaces with each other. It’s not as radical as it sounds—for Ollie and Ditto’s OLSO brand, co-living typically takes the form of multi-bedroom apartments shared by roommates. For years, the student housing industry has also been building suites that students share as roommates.

“Our product type is a natural evolution of the student housing model,” says Ollie’s Bledsoe.

ALTA LIC opened in May 2018 with 466 apartments. Of those, Ollie is operating 169 as furnished co-living suites with a total of 422 bedrooms. According to Bledsoe, it’s the largest purpose-built co-living property in the United States.

After less than a year in operation, 73 percent of these units are occupied, with renters paying from $1,260 to about $2,200 per month for a bedroom. The higher priced units may be larger, have better view, private entrances off the hallway or their own, un-shared bathrooms.

The cost of a bedroom also includes wireless Internet service and weekly housekeeping services, including bed linen, towels and toilet paper, along with shampoo and hand soap from Malin & Goetz. “It is the convenience of hotel living,” says Bledsoe.

The units are sized for efficiency and come furnished with custom furniture designed by Ollie to make the best use of small spaces. “For us a 535-square-foot studio is a two-bedroom micro-suit… a 750-square-foot one or two-bedroom is a three-bedroom suite,” says Bledsoe.

These co-living suites earn an average of 44 percent more income in rent per sq. ft. than the more conventional 297 luxury apartments at the 43-story tower, according to Bledsoe. The net operating income from these units is also 30 percent higher per sq. ft., even with the extra cost of co-living amenities like the housekeeping service.

 

Read more at National Real Estate Investor

Stanford Shopping Center wants to tear down a Macy’s store to make room for luxury retailers

The Macy’s Men’s store at Stanford Shopping Center could soon be replaced by retail heavyweights.

Simon Malls, the mall’s operator, proposed tearing down and replacing the 94,337-square-foot building with a Restoration Hardware and a Bashford luxury retailer, the Palo Alto Daily Post reports.

The men’s department store would be then merged into the shopping center’s main Macy’s store, Simon Malls Spokeswoman Solana Tanabe told the post.

A three-story, 43,581-square-foot Restoration Hardware store would reportedly take over the direct location, with a one-story 28,000-square-foot The Wilkes Bashford shop built on the nearby parking lot between Sand Hill Road and Pistache Place. Simon Malls is also looking to construct two 3,506-square-foot buildings as part of the plans.

Simon Property Group bought the mall from Stanford University back in 2003 for $333 million, though it still leases the land from the university. The surrounding region —  which includes Palo Alto, Menlo Park, Woodside and Atherton — is prime for luxury stores, with Stanford’s median home value estimate is just of $3 million, according to Zillow.

Restoration Hardware reportedly will be designing its building to include a rooftop restaurant and garden, as well as second-floor terraces. Simon Malls also has an alcohol permit in the works.

 

Read more at San Francisco Business Times