4 Issues That'll Dramatically Change S.F. Real Estate
Between leasing volume, requirements and office layouts, we are in a different era than ever before. Three expert panelists shared four reasons why at ACG's monthly luncheon at The City Club last week.
1. Surge of 100k SF Leases
JLL VP, director of research Amber Schiada is seeing more leases that size than in the dot-com days, with 4M SF of tech requirements 100k SF or more. Some recent ones: Advent, Uber, Lending Club (she says the latter two are still looking for more space). S.F. is now the new HQ location, especially for tech cos looking to attract Millennials who want to live in a city. Rents are up 95% since 2010 but not yet near the peak (they are averaging $65/SF vs $80/SF during the dot-com boom, which is $105/SF adjusted for inflation). Tech didn't drive this much leasing in 2000; it was driven by financial firms like JP Morgan. And, interestingly, tech only occupies 20% to 25% of the market today.
2. Different Co-Working Needs
RocketSpace president Karl Knight (left) says he is seeing demand from foreign companies that want to have a presence here. Also, more companies are keeping "fancy HQs" at their home bases and wanting to build out a 50-plus person office (spokes) in S.F. and are going the co-working route to do it. And the co-working concept for larger companies is coming to fruition, with requests for teams up to 125 people (along the lines of build-to-suit).
3. Mature Design Requests
Tenants are getting increasingly sophisticated in terms of what they want, with groups producing the next generation of office space, panelists told Bisnow's Tierney Plumb, who moderated. Kilroy SVP, asset management Rick Buziak (seated next to Karl) says some offices now have 80% to 100% open office layouts, as more CEOs sit among their employees on work benches. Those trends, to a large extent, are here to stay. Tech companies are increasingly looking for the right “environments” for workers, he says. There are a few recent examples of tech companies building company-branded spaces separate from office spaces that function as cafes in the morning and bars at night, says Rick. And sometimes they are in retail spaces only employees can access.
4. Sublease Space Getting Snapped Up
The sublease market is up a bit but nowhere near the peak volume of recessionary levels. It comes on and off the market quickly, says Amber, in an average of six months. A lot of tech companies are looking for two- or three-year terms, while landlords are wanting to offer five to seven to capture today's rates. Since tech is sliding into tech space, there's a lot of ready-to-go plug and play designs in place that fit well together. Rocket Fuel just put 50k SF on the market, and we just broke news about Oracle subleasing from Gymboree.
