How are developers preparing for sea level rise?

The Bay is expected to rise up to 10 feet in the next 80 years; how are local developers protecting their waterfront projects? According to the SF Business Times, “With the right planning, project designs and innovative construction, new developments can not only survive the effects of climate change, but in some cases, can help protect the region from flooding and erosion.”

Depending on what changes the world makes (or doesn’t make) to slow climate change, California estimates that waters will rise 1.1 to 2.7 feet by 2050 and between 2.4 and 10.2 feet by 2100. Most developers and project planners aim to be ready for 2 feet of sea-level rise by 2050 and 6 feet by 2100.

One solution is to truck in dirt to raise the level of the ground before building; Brooklyn Basin, a master-planned community on Oakland’s waterfront, elevated the land 3 feet with this method, and it is also being used on Treasure Island. The Treasure Island development is also using the strategy of siting buildings farther away from the shoreline to allow room for future retaining walls or levies. Terracing is also an option; India Basin and Pier 70 in San Francisco are building homes on sites that already sit well above the water, even if it means they’re a little farther from the waterfront. A more back-to-nature approach is restoring the Bay’s wetlands and marshes, which absorb water and slow flooding.

New developments have many strategies to survive sea level rise, but it remains to be seen how older buildings and infrastructure can be protected. There are currently 48,895 homes in the Bay Area worth a total of $31.8 billion that are at risk of flooding due to sea-level rise, on 48 to 166 square miles of threatened shoreline.

Source: SF Business Times

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

 

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’s the hold-up on housing development in the Bay Area?

Bay Area paradox: We need housing, but we don’t want to build faster.

Chronic lawsuits against new Bay Area housing developments. Loud, angry protests against pro-growth legislators and mayors. If the Bay Area has an all-season contact sport, it’s the recurring NIMBY fights against housing construction. And although almost everyone agrees housing prices are too high, few want to see faster development to tackle the problem, according to a recent Bay Area poll for the Silicon Valley Leadership Group and this news organization.

Read more on NAI Northern California’s Newsletter

Can opportunity zones improve Calfornia’s economy?

How federal ‘opportunity zone’ tax incentive can help California build an inclusive economy.

The federal opportunity zone program created by the 2017 tax overhaul, enables investors to defer capital gains taxes on funds invested in designated communities. Opportunity zones offer one path forward that relies on private capital to bear the cost. The program is designed to attract investors holding $6.1 trillion in unrealized capital gains, according to the Economic Innovation Group.​

Read more on NAI Northern California’s Newsletter

How are Tech IPOs affecting Bay Area Housing?

How upcoming tech IPOs could affect the Bay Area housing market.

Last week, San Francisco-based ride-hailing startup Lyft finally filed to go public – the first of what is expected to be a number of area startups (such as Uber, Slack and Pinterest) that could be making the leap from the private market this year. To understand what this means for those living and working in the Bay Area, I talked to a couple of people in the real estate industry to get their thoughts. The short answer: The IPOs will almost certainly impact inventory and pricing.

Read more on NAI Northern California’s Newsletter

Is Bay Area housing still a sizzling hot housing market?

Even cool, Bay Area housing market is still hot.

The San Jose housing market has cooled more than any other in the country — and it’s still the hottest in the nation, according to a recent Zillow survey. The bidding wars and quick cash sales have abated, and home sellers are cutting prices more often and waiting longer to close deals than a year ago. But middle-income families still struggle to afford the median-priced home of $1.2 million in the San Jose metro area. A typical family needs to put about $600,000 down to fit that mortgage comfortably in their budget.

Read more on NAI Northern California’s Newsletter

 

 

How are there over 100,000 vacant homes in the San Francisco metro area?

An estimated 100,025 homes are sitting empty in the San Francisco metro area.

Compared to other cities, San Francisco metro area’s vacancy rate is actually low at 5.6 percent. Of the 1.784 million households counted in the census region, roughly 1.684 million are occupied. LendingTree concludes a region like San Francisco – which includes Oakland, Hayward and surrounding areas is what’s considered a sellers’ market, meaning people selling their homes will easily find buyers, while future homeowners will struggle to buy. Anyone who has tried to buy a home in the city in the last decade knows this to be true.

Read more on SF Gate