February 5, 2019 2019 PPC Markets

Concord/Pleasant Hill/Walnut Creek

The commercial real estate market in the East Bay is healthy and ripe for investment. In 2018, the East Bay opened 18.2 million square feet of office space — the most of any market in the nation. With all of the area demand for office space, vacancy has dropped slightly to 4.7% and the unemployment rate is at 3.1%. Keeping consistent with demand trends, research shows commercial real estate prices have risen sharply over the past five years, and in turn, rent prices continue to rise. The biggest driving force for the East Bay commercial real estate market is retail space. In 2018, the Walnut Creek retail market continued to boom with the opening of several new retail and dining spaces.

Denver/Boulder

One of the Denver/Boulder market’s key drivers is the region’s significant tech presence. The metro area has seen an influx of major tech companies, including Facebook, Amazon, Apple, Marketo, and Slack, that have started developing offices in the area. Employment in the metro area went up 2.5% in 2018. Commercial real estate vacancy has risen to 5.9% in the Denver/Boulder area and rental rates have gone up 1.2%, slowed slightly by elevated vacancy. Even with increased vacancy, there has been a huge uptick in metro construction. At the midpoint of 2018, there was 6.5 million square feet under construction, with nearly 675,000 square feet of retail, far surpassing 2017.

Oakland

The Oakland office market is one of the tightest in commercial real estate, with a 5.3% vacancy rate, just edging out San Francisco. Oakland benefits from the presence of the tech industry and tenant overflow from the Silicon Valley. With such a tight market, prices have risen about 16% over the past two years. Prices are expected to keep rising, with 1.5 million square feet of office space under construction in 2018 and plans underway to break ground on a new building that would rival San Francisco’s Salesforce Tower. On the industrial side, things have slowed down slightly in the past year. Industrial vacancy has risen to 4.2% and there is 5.3 million square feet under construction, a number that is expected to drop.

San Francisco

Commercial real estate in San Francisco has become very competitive, with all of major economic indicators pointing towards sustained, if not accelerating, levels of growth. Tech has become a major driver of the San Francisco market, as the city is home to the headquarters of tech giants Uber, Salesforce, and Yelp. Demand in the area is rising, because tech, start-up, and publicly traded companies alike grow so rapidly. There is only 6.8% office vacancy in the market, with 2.8 million square feet under construction in 2018. Much of the development is taking place in the SOMA neighborhood, where many of tech companies are located. Unemployment in San Francisco has dropped to 2.3%, the lowest rate among of PPC’s markets.

San Leandro

San Leandro’s commercial real estate market has been on the upswing over the past few years. One of the biggest commercial real estate transactions in the area was the 2018 purchase of Westgate Shopping Center by Blackstone Real Estate for $87 million. The complex is a big aspect of the San Leandro economy, having been both a center for retail and a hub for startups and creative businesses as well. Meanwhile, a 2018 study showed there was 27.8 million square feet of occupied and unoccupied industrial space in San Leandro, with a low 3.7% vacancy rate. Over the past three years, lease rates and building sales in the area have increased 25% to 30%.

Seattle

Seattle is home to corporate giants Amazon, Starbucks, and Microsoft, and their presence is one of the driving forces in its commercial real estate market. With major companies like these in the metro area, the demand for Class A office space has risen dramatically over the past few years. Seattle has become the strongest real estate market in the nation and the third-best place to invest, mostly supported by the major companies headquartered in the Seattle metro area. Vacancy in industrial, office, and retail spaces have reached historic lows at 4.2%, 7.5%, and 9.1%, respectively. As a result of declining vacancy rates, rental rates are rising as high as $70/square foot.

January 7, 2019 2019 PropTech Predictions

PropTech Predictions were recently covered by PropModo:

2018 was the biggest year ever for PropTech, both in the adoption of technology and the amount of funding that poured into the space. There has been a snowball effect that has quickened the pace of innovation to new heights. Predictions are that PropTech adoption will continue to accelerate in 2019.

There has been a noticeable increase in investors’ and property owners’ PropTech products. In 2019, it is expected that we will see more companies moving quickly to pilot on a product. Naturally, if the product demonstrates ROI, they will implement it more widely. Moving into 2019, the DNA of Real Estate Tech is changing. In the past, PropTech startups were often started by Real Estate professionals who saw pain points in the industry that could be addressed by technology. We are now starting to see seasoned tech entrepreneurs building companies focused on the CRE industry because they see an enormous market opportunity.

We will continue to see an influx of high-level technology talent entering the PropTech world that will help accelerate the pace of innovation. AI and machine learning applied to the vast amount of real estate data will begin to show value. New technology products aim to make sense out of all the data and provide property owners and occupiers with valuable insights. For example, Skyline AI leverages proprietary artificial intelligence to source, analyze, acquire and manage institutional-grade property investments.

In 2019, it is expected that mobile applications that enhance the experience of those who work in commercial office buildings by providing easy access to the building and to a variety of in building and local services will have a major surge. All in all, the changing DNA of PropTech startups, the rise in the utility of AI-Driving products, as well as the demand to improve the tenant experience with technology are some of the many positive trends that will drive the adoption of new products in this category in 2019.

Read more on PropModo.

December 10, 2018 What Do Asset Managers Want?

What Asset Managers Want was recently covered by Commercial Property Executive:

There are many ways property managers can add value to their colleagues in asset management. First and foremost, asset managers are looking for property managers to understand the investor’s strategy. If a property manager can speak the language of finance and real estate management, it helps lend credibility to themselves. It is important for a property manager to grasp the client’s investment strategy.

Since creativity is another prized quality, asset managers look for the value property managers can add by providing market insight such as the granular, on the ground knowledge that extends beyond generic third-party reports. Usually, asset managers need property managers to transform data into actionable information.

Lastly, asset managers look for a property manager that can defuse tensions between the client and a service provider. Property managers should think boldly, take the initiative and act as a partner. In short, they should be boosting the bottom line.

Read more on Commercial Property Executive.

November 28, 2018 High Demand Expected to Continue in Bay Area Industrial, but Challenges on the Horizon

High Industrial Demand was recently covered by BisNow:

In Silicon Valley, the East Bay, Tri-Valley, and Central Valley, industrial markets are reporting historically low vacancy, high demand, strong growth and a healthy pipeline of new development. Cushman and Wakefield reported 4.8% vacancy in East Bay/ Pleasanton market and the Central Valley reported 3.5% last quarter. In the past, vacancy below 10% was a landlord’s dream. Short term, developers continue to push forward with projects in markets with many tenants seeking high-quality space. Even though vacancy is very low across Northern California’s industrial markets, the third quarter marked the sixth quarter of negative absorption in the East Bay, largely driven by tenants moving into Class-A space and leaving Class-C space vacant.

Recent studies have shown that rent growth is expected to become more modest than the 30% per year reported in the past. Although, the industry should expect 3% to 5% rent growth each year. The Central Valley is starting to benefit from warehouse distributors and manufacturers leaving the 880 corridor and moving toward the tri-valley area, where they don’t have to compete with Apple, Facebook, and Tesla for employees. In addition, the Central Valley has added significant build-to-suit properties in the last 2 years, adding 18M SF to the market. With all of this progress, labor costs are rising, especially since much of the labor force coming into the 880 corridor doesn’t live close by and often commutes from the Central Valley.

Year-over-year, industrial transactions are up 26% nationally, compared to retail transactions up 1% office transactions down 13% and apartment transactions up 8%. Industrial users, especially smaller users in 20K to 50K, are having trouble hiring and retaining qualified employees, especially since employees don’t have housing options close to these industrial employers. In addition, infrastructure around any industrial building also must endure heavy traffic, which typically includes trucks 24 hours a day, which makes it difficult to build near any residential area. Many cities perceive distribution, fulfillment and logistics jobs as not being high-wage, highly educated jobs that many would prefer to bring into their cities. The perception remains that warehouses are just large boxes with a few employees in them that don’t act as economic drivers that bring high-wage earning individuals into their communities.

Read the full story on BisNow