Bay Area Office Market Still Hot

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Bay Area Office Market Still Hot
Posted on June 20, 2013 by ULI

On Tuesday, June 11 well over two hundred industry enthusiasts gathered at the Hyatt Regency in San Francisco to hear the office sector’s finest professionals opine on market conditions as well as inform attendees about their current projects.

Kenneth Rosen, Chairman of the Rosen Consulting Group and Chair for the Fisher Center of Real Estate and Urban Economics at UC Berkeley, began the discussion by giving an overview of the economic atmosphere nationally and locally. While America is slowly recovering from a deep recession, California has bounced back faster and Northern California in particular has led that charge. Recovery in the Bay Area markets have been aided by strong job growth within the San Francisco and San Jose markets, which has also spilled slightly to the East Bay and surrounding communities. Housing production and prices have continued to surge northward as demand increases. All of these factors have led to increased demand in the office product, but essentially the types of spaces that people work in has changed, which is largely due to the influence of technology, as John Kilroy would touch upon.

John Kilroy, Chief Executive and President of the Kilroy Realty Group, highlighted that the Bay Area recovery has been tech-centric. Mr. Kilroy noted that the spillover effect of the tech resurgence has led to even law firms wanting cool and dense space. The proliferation of transit, high density, and other urban trends have led companies across all disciplines to look at non-traditional footprints and places that present more integrated office settings. Collaboration is a key word with Generation Y’s and Millenial’s and thus work space that is conducive to their expressive characters is needed and warranted. However, Kilroy summed up his development approach as building in flexibility and thinking ‘life after tenant’ which assists in redeveloping the space for the next user.

Jeanne Myerson, President and CEO of the Swig Company, noted that while the buzz associated with technology is great, it presents challenges for landlords who constantly have to deal with the changing tech world. Ms. Myerson mentioned that a lot of young companies may not have forecasted their real estate needs out long term and thus can have a difficult time in signing a 15-year lease. Some are more comfortable with just providing for their short term needs. However, this aspect can also be an opportunity in a multi-tenant building. End users are asking for more across all levels: more output per square foot and more people per square foot. These are exciting times as Swig continues to looks for partnerships and investment opportunities that align with the company’s core strengths while meeting its objective for value creation.

Stuart Shiff, Founder of Divco Properties, rounded out the panel by introducing a different investment model. While Kilroy and Swig are more long-term holders of assets, Divco’s average asset hold time is approximately 5 years. They look for value add and the opportunity to meet their desired returns for all parties involved. Mr. Shiff also noted that companies are also more concerned with the environment and amenities. Workers are demanding outdoor work spaces, fire pits and campus type settings. This market trend is growing as work becomes a more fluid part of life and is no longer viewed as solely a place to be between 9AM and 5PM. Everyone now wants to work in a cool, tech-centered office environment.

In conclusion, the panelists were bullish on the current market and see steady growth on the horizon, at least in the Bay Area where product is still constrained. Building activity has taken off and recent demand has been fairly consistent. With the amount of local workforce talent, the Bay Area is well-poised to continue to be an attractive place to start, grow and sustain your company.

Authored by: Sean Brooks, City of Redwood City

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