Transit-oriented development on the rise

Cities across the Bay Area are opening up to transit-oriented development, building high-density housing with ground-floor retail near BART stations, including on BART-owned land. Despite neighbor complaints, cities are revising their zoning restrictions to allow bigger buildings near major transit hubs.

Most of the development is happening in the East Bay, with completed projects near at least eight stations and more under construction including a 402-unit apartment complex at MacArthur Station with 13,000 square feet of commercial space; 94 units at Fruitvale Station; 200 units at Pleasant Hill Station; 410,000 square feet of commercial space at West Dublin/Pleasanton Station; and 596 units at Walnut Creek Station. Planned projects in Millbrae, West Oakland, Lake Merritt, North Concord/Martinez, Balboa Park, and Fruitvale total over 2,300 units and over 2 million square feet of commercial space.

As zoning codes begin to relax near transit, future development opportunities could open up, strengthening the local markets for existing multifamily buildings as well as retail and office assets.

Source: SF Chronicle

Investor confidence in multifamily real estate begins recovery

According to a survey by National Real Estate Investor, confidence in multifamily properties appears to be recovering after a dip in 2018, though all other classes of commercial real estate have been neutral or dropped slightly. The survey asked respondents to rate the attractiveness of the major commercial real estate markets on a scale of one to ten. Most investors prefer multifamily and industrial properties over hotels, office, and retail; last year multifamily and industrial were tied for desirability, but this year multifamily pulled ahead at a 7.9 and industrial fell to a 7.5. They are both still well ahead of the other categories, though; hotels are a 5.9, offices are a 5.8, and retail is just a 4.8. 

Compared to 2018’s rankings, hotels dropped .2 points, offices dropped .1 point, retail held steady, and industrial dropped .2 points. Overall, multifamily has been a rock in the current real estate cycle, despite cap rates being driven lower by the high demand for multifamily. 

While desirability doesn’t necessarily reflect actual sales and purchases, sentiment can be a useful data point in the commercial real estate market. For more information about the current state of the market and how the San Francisco Bay Area differs from the nation as a whole, contact one of our advisors; we have specialists in multifamily and industrial properties as well as office and retail.

Source: National Real Estate Investor

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.

Foreign investment rising for net lease assets

Foreign investment in commercial real estate is on the rise due to the search for yield and portfolio diversification, according to the World Property Journal. Globally, investment in net lease properties (office, retail, and industrial) averaged $3 billion per year from 2011 to 2014 and is up to more than $8 billion per year from 2015 to 2019. In the United States, foreign investments for Q1 2019 represented 15.1% of net lease transactions, totaling $1.9 billion, up 6.6% compared to Q1 last year when they only represented 12.9% of the market. In 2018, foreign investors held 30.1% more net lease properties than in 2017, an $8.8 billion increase.

Most of these investors are from Canada, South Korea, and China. Canadians invested $5.55 billion, with a focus on industrial properties; South Koreans invested $3.28 billion, overwhelmingly preferring office space; and Chinese investments of $3.22 billion also focused on industrial assets.

So far this year, New York City, San Francisco, Boston, Dallas, Columbus, and Los Angeles have received the most foreign capital, but commercial real estate investments in high-growth secondary and tertiary markets like Phoenix, Seattle, Baltimore, and Atlanta are also becoming popular.

Source: World Property Journal

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

 

The San Francisco office pipeline is overflowing

The SF office pipeline is overflowing. The city only has enough cap space to approve about 2.1 million square feet of office space, but over 8.1 million square feet are currently proposed. So what happens to the developers who want to add that extra 6 million?

The Planning Commission can only approve 950,000 square feet of office development per year, with any unused approvals rolling over into the next year. When there’s not enough cap space to go around, the commissioners get to develop their own policies to decide which projects will go forward and which will have to wait until next year. One such policy approves projects in phases, so a given project might be able to start work on half of its square footage this year and resubmit the second half for approval next year; the idea is that this helps projects get started moving forward more quickly. However, it also means that they take longer to complete. From The San Francisco Business Times: “Doing so means ‘uncertainty, and it means a longer approval process,’ said Ryan Patterson, a partner at Zacks, Freedman & Patterson. ‘Time is money. So longer approval processes mean more expense. And that means even higher office rents.’”

Some developers have been able to carve out exemptions by getting voters to approve them; the Shipyard project in Hunter’s Point got its 5 million square feet of office space approved this way. The current system doesn’t seem likely to go away, though, leaving commissioners with a lot of power and developers with a lot of waiting.

Source: San Francisco Business Times

John Caronna joins NAI Northern California as Vice President in Oakland

Multifamily real estate specialist joins the team in Oakland

NAI Northern California is pleased to announce that John Caronna has joined as Vice President in Oakland to focus on multifamily real estate. John’s combined experience as a multi-unit real estate specialist, property owner and manager makes the transactions stress free for his clients.

With Square move on horizon, fintechs discover Oakland

Square’s expansion into Uptown Station underscores what fintech entrepreneurs have been saying for some time: Oakland is hot and only getting hotter.

Square’s new lease taking all of Oakland’s Uptown Station signals the growing popularity of the East Bay’s largest city for fintechs and other startups.

Fintech entrepreneurs say Square moving into the city in such a big way — the payments company plans to start moving in about 2,000 employees beginning later this year — means a lot more energy and talent will be drawn into Oakland.

Square’s move represents a tripling of Oakland’s fintech workforce, which the city estimates to be just under 1,000 people.

“We have a small but growing tech sector in Oakland,” said Marisa Raya, economic development specialist for the city of Oakland.

 

 

Read more at San Francisco Business Times

 

WeWork takes new downtown San Jose site amid expansion

WeWork is leasing a new downtown San Jose location, a clear indication of an ongoing expansion by the co-working titan in the core area of the Bay Area’s largest city.

The newest WeWork location is at 152 N. Third St., a downtown San Jose office building owned by a group led by Gary Dillabough, a realty investor who is partnering with WeWork on the Bank of Italy office tower project a few blocks away.

The interest from WeWork in the North Third Street building appears to point to a rising focus on downtown San Jose, spurred by potential major developments in the area by tech titans such as Google and Adobe Systems.

WeWork agreed to lease 75,000 square feet at 152 N. Third St., according to commercial realty experts and information from sources with knowledge about the WeWork plans at that office building. The WeWork operation on North Third Street also shows up on the company’s website as a “just announced” location.

“It’s very encouraging that WeWork is getting more interested in downtown San Jose,” said Mark Ritchie, president of Ritchie Commercial, a realty firm.

In addition, WeWork has taken space in one of the Riverpark Towers office high-rises at 333 W. San Carlos St. and the tower at 75 E. Santa Clara St.

“WeWork is now into four buildings in downtown San Jose,” Ritchie said. “152 N. Third St. should function very well as a co-working building.”

 

 

Read more at The Mercury News

 

 

Square takes over enormous Oakland building

Uptown Station, once meant to be Uber’s Oakland HQ, nets a new tech tenant.

Not too long ago, the circa 1929 Beaux-Arts building in Oakland now known as Uptown Station was meant to be the East Bay home of Uber, which had ambitious plans for the historic and recently refurbished locale.

But Uber sold the building almost exactly a year ago, netting $175 million from Oakland-based investment firm CIM Group but leaving the future of the sometimes neglected unofficial landmark up in the air.

On Thursday, CIM and Square announced that the SF-based payment app company owned by Twitter CEO (and Benioff antagonist) Jack Dorsey will lease much of the building, completing the locale’s long transition into an East Bay tech hub.

“Square has signed a lease for the entire office space in the iconic Uptown Station building,” according to a Thursday press release from both companies, a deal covering more than 350,000 square feet.

The building at 1955 Broadway first opened as an HC Capwell department store in the ‘20s, at the time apparently a very big ticket for Oakland as thousands showed up to see the mayor overturn the first shovelful of dirt on the future shopping hub.

Eventually, the building transitioned into being a Sears store instead, and for many years now has laid mostly dormant.

Developer Lane Partners spearheaded efforts to turn the disused retail Mecca into a new mixed-use office building before selling to Uber in 2016.

Square won’t actually move in until the end of 2019, possibly because CIM Group is still overseeing work that’s being done on the nearly century-old building.

“Oakland is committed to attracting businesses whose values align with our community. […] I believe Square can be that company,” Oakland Mayor Libby Schaaf said Thursday.

 

 

Read more on Curbed SF