Cautionary Tips From Transwestern
We caught up with Transwestern SVP Markus Shayeb at his Four Embarcadero office yesterday, where he expects to hire up to three more tenant brokers this year. Here are four reasons why he's bracing for this amazing real estate cycle to turn in the next one to two years.
1) Hiring numbers aren't adding up.
Transwestern did a recent employment study tracking companies leasing up large blocks like Twitter and airbnb. They came up with more than 20,000 employees they'd need to hire to fill that much space. Scrolling through job openings revealed there are just 5,000 openings between those tech titans. (5,001 after Twitter puts a full-time censor on US Airways.) He's trying to better position clients two to three years down the road, hoping to get those figures right. He's studying Salesforce's 714k SF transaction (rendering below) and putting the puzzle pieces together as to whether this will be consolidation or expansion space for the cloud giant.
2) The '89 earthquake, 2000 dot-com boom, '08 crash: cycles are inevitable.
The Bay Area is a microclimate where high rents are continuing to drive out companies (AT&T, Chevron), which are moving people to Texas. That's partly why Transwestern's Houston office is doing so well, he says. Trophy assets will always be desirable from a sales standpoint, but high rents aren't sustainable inside Class-B and C product. The comparison on the residential side: a condo is the first to lose value over a house. Similarly, a flight to quality for Class-A will hold up when the market turns.
3) Employees can work anywhere.
The recent wave of full-building leases (Dropbox taking all of 333 Brannan, rendered above, and its neighbor) symbolizes a land rush. Making sure there's enough well-qualified talent in the Bay Area to hire and fill those buildings will be a challenge. If you look at the centers around the world like London and NY and the way people operate, he says, you don't have to walk next door to communicate with colleagues anymore. As a result, companies have the flexibility to hire in any market in the world.
4) It's too expensive for many.
Some of Mid-Market's rising rents are pushing out nonprofits who can no longer afford to be there, he says. Same holds true for residents in middle- and upper-middle classes. Two working professionals each making $100k to $120k/year may look like the top 5% on a national scale. But with a couple kids, a $250k gross income/year isn't going far. At some point S.F. will have to ask itself, are we going to be a tech city—and that's it? It will be an interesting question, he says. (We're starting to think the national movement to teach kids how to code is more for supporting the parents than the children.)
