Coronavirus Update: Trump Nixes Reopening Guidelines, Jobless Claims Keep Rising, Auto Industry Furloughs

CDC reopening guidelines have been shelved. (Getty Images)CDC reopening guidelines have been shelved. (Getty Images)

Trump Nixes Reopening Guidelines

The Trump administration shelved a 17-page set of guidelines the Centers for Disease Control and Prevention created for schools, businesses, mass transit, religious facilities and child care programs, the Associated Press reported Thursday.

While they were interim, the guidelines ended up circulating widely last week as they went to the White House for approval; the White House was supposed to officially publish them Friday. The AP quotes an anonymous CDC source who said the agency was told that the guidelines “would never see the light of day.”

The guidelines went into great detail by category with the common thread of promoting healthy hygiene practices, maintaining distance and wearing face masks. They spanned the three recommended phases for reopening, with the final being as close to normal operations as possible while still maintaining distances and disinfecting.

Jobless Claims Keep Rising

Jobless claims rose again to deepen the economic plight wrought by the coronavirus pandemic.

Another 3.1 million people filed for unemployment last week, the Labor Department reported Thursday. That pushes the total to 33.5 million in just seven weeks.

The report follows payroll company ADP’s report Wednesday that private payrolls dropped by 20 million people.

Washington, Georgia, New York, Oregon and Alabama had the largest increases in unemployment claims, according to the Labor Department. California, Florida, Connecticut, New Jersey and Pennsylvania had the largest decreases in new jobless claims.

Washington Post-Ipsos poll found that 77% of those laid off or furloughed are expected to be rehired by their previous employer.

Slumping Auto Sales Prompt Furloughs

Atlanta-based Cox Automotive is furloughing roughly a third of its workforce, mostly in the United States, amid the continuing slump in auto sales.

Industry trade publication Auto Remarketing reported that the company will furlough 12,500 of its 34,000 employees starting May 17. Cox Automotive owns such companies as Kelley Blue Book, Autotrader and Manheim.

The executive leadership is taking a 25% pay cut and vice presidents are taking a 15% pay cut.

Auto sales have plummeted since March as cities and states issued stay-home orders and shut down their local economies to slow the spread of the coronavirus.

Cox Automotive last week forecast that new light-vehicle sales would hit historic lows for April when it finishes the month near 620,000 units sold. That’s down 53% from April 2019 and a 37% drop from the previous month.

On Thursday, the company reported the wholesale prices for used vehicles fell 11.41%, knocking the Manheim Used Vehicle Value Index down 9.2% from a year ago to the lowest level in three years.

Nearly 87% of those being furloughed in the United States are with Manheim’s auto auctions.

Stock Markets Rise

The major indices traded in the green Thursday morning, shrugging off bad jobs news. The technology-heavy Nasdaq composite, in fact, turned positive for the year. Fortinet Inc., a cybersecurity firm, led gainers in the morning to hit a 52-week high. It reported first-quarter earnings that beat estimates.

Posted on May 7, 2020 at 4:41 pm
Cara Milgate | Posted in Commercial |

California Moves to Let Next Wave of Retailers Reopen in Pandemic

Gov. Gavin Newsom said counties in California are being given more leeway to decide the pace of business openings based on local circumstances, provided they file contingency plans with the state. (Getty Images)Gov. Gavin Newsom said counties in California are being given more leeway to decide the pace of business openings based on local circumstances, provided they file contingency plans with the state. (Getty Images)

Gov. Gavin Newsom said California can begin moving into a second phase of business openings starting as early as Friday, allowing for stores that sell items such as clothing, sporting goods, toys, books, music, and flowers to begin to operate primarily through pickup services if modifications are made to their real estate.

The stores that permitted to reopen late this week will be required to modify their locations but details for low risk businesses, along with the manufacturing and logistics providers who serve those retailers, are expected be issued Thursday.

The announcement comes as the state is in its seventh week of a stay-at-home mandate, which is increasingly facing opposition and protests by some cities and residents as the economy sags and unemployment increases.

Newsom said Monday during his daily press briefing that the decision to move into the upcoming phase of new “low risk” retail openings was based on the criteria he laid out last month for his phased reopening plan, based on factors including the state’s and cities’ progress with medical preparedness, testing and contact tracing for the spread of the virus.

“This is a very positive sign and it’s happened only for one reason: The data says it can happen,” Newsom said.

The nation’s most populous state, California was among the first states to issue at stay-at-home order in response to the coronavirus in mid-March. Its economy, one of the largest in the world, has been hard hit by the ripple effects of the closing of nonessential businesses, increasing unemployment and people staying at home. In the past couple weeks, protesters have gathered in Sacramento and Orange County cities including Huntington Beach calling for the order to be lifted. A few cities have defied orders, lifting some restrictions and opening some public areas such as beaches.

Newsom has said he remains focused on stemming the spread of the virus and plans to reopen the state in phases based on “facts and data, not ideology.”

This week’s openings do not include business offices, sit-down dining establishments, or shopping malls, which have all been closed for the past several weeks by the coronavirus pandemic, the governor said. More types of businesses are expected to be included in a later part of Phase 2 openings, which are also expected to be decided based on the virus data and preparedness factors.

Sonia Angell, director of the California Department of Public Health, said the state plans to issue guidelines for allowing certain counties and other regions not hit hard by the coronavirus to speed up openings of other types of businesses, provided they submit contingency plans in advance to the state.

Newsom said those lesser-hit counties could get more leeway in opening certain hospitality-related businesses, such as hotels and restaurants, which have been among the hardest-hit businesses in terms of closings and job losses.

The governor said further openings depend on Calfornians feeling safe and confident enough to enter these businesses, even with the proper safeguards. Governments in hard-hit areas including the San Francisco Bay Area have been granted the right to maintain tougher standards apart from state relaxations where necessary.

Newsom did not provide a timetable for what would be a next wave of new statewide business openings during the current second phase, with an eventual statewide third phase to include more relaxed restrictions for places such as offices, gyms, bars, salons and other types of service businesses that have the most user interaction.

Ryan Patap, director of market analytics for CoStar Group in Los Angeles, said Monday’s announcement marked a “nice beginning” for opening up the state beyond the essential businesses currently in operation, but California remains a long way from seeing positive demand for retail real estate make a comeback.

“The environment for brick-and-mortar retail remains highly uncertain,” Patap said. “Even if allowed, how many consumers will be fearful of leaving their home to patronize retailers? Even if stores see customers come back, will retailers generate sufficient sales to justify staying open?”

Retailer confidence at this point appears to be as much an unknown as consumers’ attitudes toward returning to these businesses.

“Will we have another outbreak in which we need to shut down again?” Patap added. “These are only a few of the questions that must currently be going through retailers’ heads. What retailer is going to commit to a new lease?”

Posted on May 7, 2020 at 4:38 pm
Cara Milgate | Posted in Commercial |

Retail Loan-To-Value Levels On Steadier Footing Heading Into Economic Downturn

Retail investors and lenders have been far more conservative in recent years compared to the years leading into the Great Recession. (CoStar)Retail investors and lenders have been far more conservative in recent years compared to the years leading into the Great Recession. (CoStar)

Retail properties are expected to have the most challenging road forward due to the acute effects that the coronavirus pandemic is having on the sector. Shelter-in-place orders, which began in mid-March in the San Francisco Bay Area, have been extended through the end of May, placing significant pressure on retail property incomes.

In the most recent March retail sales report from the U.S. Census Bureau, total retail sales retreated 8.7% across the United States, the worst monthly decline since the data became available in 1992. The hardest hit retail sector was clothing stores, which saw sales decline by 50%, according to the report. And furniture, bars and restaurants, and sporting goods all saw sales declines of over 20%.

Given the stress that retail property financials are undergoing, it is worth looking at leverage levels in some of the larger retail property sales in recent years compared to the levels seen prior to the Great Recession of 2008.

The loan-to-value analysis takes a broad, high-level look at the 40 largest transactions across the San Francisco, South Bay/San Jose and East Bay/Oakland metropolitan areas, where CoStar has data on loan amounts. Despite the broad view, it does give insight into the comparative lending trends for retail properties, and the relative risk for property loans compared to recent history.

Comparing the relative ratio of loan-to-value figures — the ratio of a property’s sales value to the amount the buyer financed on the deal — shows that there were significantly higher leverage levels undertaken in retail asset purchases during 2006-2007 compared to 2018-2019.

In 2006-2007 over 10% of the 40 largest retail transactions in which CoStar captured loan financing with LTV ratio’s over 80%, compared to 0 from 2018-2019. Properties with LTVs between 60% and 80% represented 45% of the sales in 2006-2007 compared to just 20% in 2018-2019. And while sales with LTVs lower than 60% accounted for 45% of retail sales from 2006-2007, 80% of the sales in 2018-2019 had LTVs 60% or below.

Clearly, retail investors and lenders have been far more conservative in recent years compared to the years leading into the Great Recession. And landlords appear to have more sustainable mortgage payments relative to their property’s net operating incomes.

This is to be expected, given changes in the financial industry stemming from the financial crisis and changes in consumer behavior as e-commerce has risen significantly in popularity. Retail properties will need all the help they can get to avoid a wave of distressed selling, which would further damage a sector already facing a number of major headwinds moving forward.

CoStar Insight: Retail Properties Facing Major Headwinds, But Debt Levels Are Lower Than Just Before Financial Crisis

Posted on May 7, 2020 at 4:34 pm
Cara Milgate | Posted in Commercial |

Plunge in Bay Area Leasing Activity Highlights Challenges Moving Forward

The unprecedented drop seen in new leasing activity around the San Francisco Bay Area is hardly surprising given the limitation on the population under the current shelter-in-place order, which went into effect on March 17 and closed all non-essential businesses, sending shockwaves through the retail industry.

In the commercial property sector, the inability to have physical property tours limits the ability of landlords and brokers to showcase available retail spaces. New retail tenants are likely tentative, given the uncertain outlook for an economic recovery and a return to relatively normal social interactions and commercial consumption levels. And owners are struggling with the ramifications of lost rental revenue and the challenges in keeping occupancy rates up in buildings, potentially attempting to renew existing tenants early.

In an analysis of new retail leasing in seven Bay Area metropolitan areas, including San Francisco, San Jose, East Bay, San Rafael, Santa Rosa, Napa and Vallejo-Fairfield, leasing volume has plummeted to historically low levels. The seven weeks from mid-March to the end of April saw average weekly leasing activity of just 36,000 square feet. To give that figure further context, the average weekly leasing volume since 2007 across the Bay Area is over 120,000 square feet.

While it isn’t unexpected that newly signed leases have been almost non-existent in recent weeks, it does highlight yet another obstacle the retail property sector is going to have to overcome. Businesses will close as a result of the current economic downturn, leaving more vacant space in need of new tenants. The stark slowdown in leasing activity could leave a gap in new demand entering the market just as vacancies start to increase, exacerbating increases in near term vacancy rates. And restarting the leasing engine will be a crucial factor in gaining some positive momentum in the retail property market.

The effect on retail rents is expected to be negative as well. Rising vacancies and a strong pullback in demand should result in declining rental rates as owners look to fill empty retail spaces. It will be worth keeping a close eye on available space in the coming months. Across the Bay Area, availability is below 5% on average, with availability registering 5% in the East Bay, 4% in San Jose, and just over 4% in San Francisco.

From a slightly more optimistic perspective, the Bay Area retail market performed relatively well through the previous economic expansion period following the Great Recession. Strong economic and population growth in the Bay Area, along with limited supply pressure, helped to maintain healthy market fundamentals. And the Bay Area is forecasted to fare better from an employment and economic growth perspective than many other areas of the country in the coming years. So, while challenges are abundant for the retail sector, Bay Area properties may be able to outperform national trends through the current downturn.

CoStar Insight: Weekly Figures Showcases Coronavirus’ Effect on Retail Sector

Posted on May 7, 2020 at 4:33 pm
Cara Milgate | Posted in Commercial |

Coronavirus Reveals the Weak Links in Global Supply Chains

Most manufacturing is expected to reshore to other parts of Asia post-pandemic, a factor that will help keep steady port traffic in West Coast markets such as Los Angeles, Seattle and Oakland. (iStock)Most manufacturing is expected to reshore to other parts of Asia post-pandemic, a factor that will help keep steady port traffic in West Coast markets such as Los Angeles, Seattle and Oakland. (iStock)

The COVID-19 crisis has profoundly affected global economies in an unprecedented way, putting millions out of work all at once, slowing commerce to a crawl and wreaking havoc on equity markets. And yet the effects of the pandemic may also prove instructive, illustrating plainly some of the systemic weaknesses and deficiencies that were papered over and unexposed during the steady economic growth of the most recent expansion.

In particular, supply chains of unwieldy length depending solely on Chinese manufacturing and ports have shown themselves to be extraordinarily brittle. Also, confidence in the trustworthiness of the Chinese government after initial assurances minimizing the severity of the COVID-19 crisis was found to be misplaced, resulting in an erosion of trust after the government reversed its previous stance and forced manufacturers to shut down operations in January.

Given the lessons being swiftly taught worldwide by breakdowns in supply chains for businesses and consumers alike, there are ramifications that should have long-lasting and far-reaching impacts for manufacturers, domestic markets and ultimately industrial investors looking to capitalize on the shifting composition of supply chain management.

Although the true extent of the frailty inherent in supply chains built without redundancies may just be coming to light, it is likely that the current state of the global economy may only exacerbate trends that were already taking place. Spurred by a number of concerns, including rising wages, total cost considerations and an administration driving an extended trade war with China, the average monthly value of imports from China fell more than 6% between 2015 and 2019, a drop of nearly $2.6 billion.

Over the same period, U.S. imports from other Asian countries, the European Union and Mexico all grew by double-digit percentages, with Vietnam in particular appearing to pick up a great deal of the slack afforded by China’s diminished export numbers. The conclusion appears certain: China cannot remain the world’s sole factory for the long term, and numerous other destinations look set to reap the rewards.

The most likely outcome of the shakeup prompted by the COVID-19 outbreak is a greater focus on building redundancies and increased resiliency into supply chains at all levels. No single country is likely to benefit in a lopsided manner from firms moving production out of China. Instead, a combination of reshoring, which involves shifting operations either to other Asian nations with low-cost labor pools or to regional trading partners like Mexico or Canada, and onshoring a smaller amount of production back to the U.S., will allow companies to diversify supply chains and mitigate the supply risk associated with concentrating in a single nation.

For companies that have chosen to onshore production after a sustained period using offshore suppliers, a number of negative factors related to supply chains prompted their return. Though quality of work and necessity for rework was cited a quarter of the time among the top 10 reasons for abandoning an offshoring strategy, freight costs, delivery or inventory concerns and supply chain interruptions made up 40% of the negatives associated with the practice, according to a 2018 study by Reshoring Initiative.

Similarly, among the benefits cited by respondents to the study were lead times, supply chain optimization and proximity to market, altogether accounting for 34% of the top 10 positives for onshoring production.

It should be noted that most onshored manufacturing is often highly complex, high-value-add work producing goods such as computer, electronics, auto and heavy equipment. This type of manufacturing is also extensively automated, and requires higher skilled workers for the jobs that do end up being created.

A distinct lack of those highly skilled workers domestically limits the amount of offshore jobs that are likely to return onshore from places like China. In contrast, manufacturing goods that require low-skilled labor and are difficult to automate constitute the bulk of production being reshored elsewhere, and are almost certainly not going to return to the U.S.

For industrial investors domestically, an added benefit may be found in inventory shortages created by the crisis. For decades, one prevailing motivation for supply chains was suppressing costs through just-in-time strategies, implementing push-pull management or other ways to reduce inventory and associated holding costs. Inventory-to-sales ratios dropped across the board prior to the Great Recession, most precipitously for manufacturers. The relatively recent rise in e-commerce forced a moderate rise in inventories, though remaining well below the ratios of the 1990s and early 2000s.

Now, however, with widespread demand causing unforeseen shortages for consumer goods, intermediate goods and raw materials alike, it is not unreasonable to expect that firms at a number of levels in the supply chain will see the added benefit of increasing inventories in the short or medium term, despite the associated storage costs. That should contribute to minor increased demand for warehouse space once economies begin to reopen, and will likely push average inventory to sales ratios above 1.4 for the manufacturing and retail segments of the market.

Given that this is largely in response to COVID-19, a “black swan” occurrence, companies are unlikely to sustain heightened inventory carrying costs permanently. Rather, this should prove to be a one-time boost for the segment when entering the next expansionary cycle and then dissipate along with the psychological effects of current shortages.

There are a number of considerations for investors targeting markets that are likely to experience tailwinds from reshoring and potential onshoring of manufacturing from China. Most manufacturing is expected to reshore to other parts of Asia, a factor that will help keep steady port traffic in West Coast markets such as Los Angeles, Seattle and Oakland, and East Coast ports such as New York, Norfolk, Savannah and Jacksonville should see similar returns to stability in the numbers of imported TEUs, or 20-foot-equivalent units, a measurement used in the maritime industry to record international containerized freight volumes.

Increased manufacturing activity in Mexico could likewise boost industrial demand in Los Angeles and the nearby Inland Empire, but could also provide additional demand in Texas markets and eastern ports.

For markets likely to experience smaller boosts from onshoring of overseas production, it’s evident from jobs created from onshoring operations between 2010 and 2018 that Southern markets are heavily favored given their lower costs for labor, the often considerable subsidies made available by these states and business-friendly policies that eschew red tape and barriers to entry. Additionally, the same states are usually equally popular for foreign manufacturers looking to locate manufacturing facilities in the U.S. market.

Though industrial investors in states attractive to firms considering onshoring will benefit directly from increases in the local manufacturing base, the reality of increased reshoring rather than onshoring should reinforce already established national and regional distribution hubs over the longer term, allowing crucial increased stability of supply chains globally and helping to mitigate risk for industrial assets across the U.S. from future disruption.

While this may be of little help in the current crisis, it is reason for cautious optimism for industrial investors looking ahead to a return to economic normalcy.

Brooks Staley is a senior consultant with CoStar Advisory Services in Boston.

Posted on May 7, 2020 at 4:28 pm
Cara Milgate | Posted in Commercial |

JULY 18, 2019|ANTHONY EDELSTEINEMAILPRINT Investment Firm Sells Off Office Building in Walnut Creek, California, for $8.3 Million 7-18-2019

Firefighting Supply Company to Move Into Centre Pointe Business Park

Investment firm Angelo, Gordon & Co. purchased six buildings in the Centre Pointe Business Park last year. (CoStar)
Investment firm Angelo, Gordon & Co. purchased six buildings in the Centre Pointe Business Park last year. (CoStar)

Firefighting supply company LN Curtis & Sons has purchased an office building in Walnut Creek, California’s Centre Pointe Business Park.

The building’s previous owner, investment firm Angelo, Gordon & Co., sold the property at 165 Lennon Lane for $8.3 million, or about $203 per square foot. It’s one of six similarly sized buildings at the office park that Angelo, Gordon & Co. purchased last year for a total of $21 million, or $102 per square foot.

The 37-year-old, 40,857-square-foot building at 165 Lennon Lane sits on a 12.36-acre lot and was vacant at the time of sale. The new owners have since moved into the second floor, taking up 20,428 square feet of space.

Eugene McGrane and Drew Hyjer of Cushman & Wakefield represented the seller, while Phil Damaschino of CBRE represented the buyer in the deal.

Posted on August 18, 2019 at 3:17 pm
Cara Milgate | Posted in Commercial |

East Bay Rentals Close to Silicon Valley Sell for $92 Million 7-22-2019

Exclusive: Per-Unit Price Reflects 55% Markup Over Average Area Sales in the Past Year

Just a mile away from Interstate 880, Artist Walk Apartments is a reasonable drive to Silicon Valley. (CoStar)
Just a mile away from Interstate 880, Artist Walk Apartments is a reasonable drive to Silicon Valley. (CoStar)

A New York City fund shop just paid a whopping half-million dollars per unit for an apartment building in the East Bay region outside San Francisco.

About 30 miles north from the heart of housing-starved Silicon Valley, Artist Walk Apartments’ greatest asset may be its location. Both the Valley and San Francisco are among the tightest housing markets in the country, and renters are increasingly looking to the southern peninsula and the East Bay for apartment homes.

Clarion Partners has agreed to pay $92.2 million for the 185-unit complex at 3888 Artist Walk Common in Fremont, California, according to CoStar data. That’s about $498,000 per apartment. Per-unit prices in the East Bay have been averaging $321,000 a unit in the past year, with only a handful of sales topping the Artist Walk price in the past 12 months.

The complex was just finished last year and has great bells and whistles: 12-foot ceilings, washers and dryers, stainless steel appliances, a swimming pool, yoga studio, barbecue areas and bike storage.

Clarion is also buying the 30,000-square-foot retail section of the property for another $18 million, making the deal worth a total of $110.5 million.

The East Bay market, led by Oakland, California, has a vacancy rate of 4.7%, well below the national average of 5.6%. But the Fremont submarket’s vacancy is a mere 3.4%, CoStar data shows.

Interest in the East Bay has accelerated during the economic expansion of the past decade, with more national and institutional investors giving the once-run-down market a new look.

For the Record: Cushman & Wakefield’s team led by Seth Siegel and Marc Renard brokered the deal for Blake Griggs, the Danville, California-based apartment development firm.

Posted on August 18, 2019 at 3:16 pm
Cara Milgate | Posted in Commercial |

San Francisco Hits Office Building Limit for First Time Since 2000 8-7-2019

Development Cap Means Demand From Tech Firms May Spill Into Nearby Oakland

Kilroy Realty's Flower Mart project is one of three the San Francisco Planning Commission approved this year. (CoStar)
Kilroy Realty’s Flower Mart project is one of three the San Francisco Planning Commission approved this year. (CoStar)

The massive growth of the tech industry in San Francisco is facing its biggest office space hurdle in almost two decades, and that could mean more demand and higher prices for the nearby city of Oakland.

The city of San Francisco has effectively cut off construction on any new office space for the rest of the year, following the city planning commission’s approval of three projects that use all the office space allocation under the city’s limit on the amount of offices that can be built. It’s the first time since 2000 that the allotment has been used up.

The three office projects approved by the San Francisco Planning Commission total almost 2.9 million square feet, taking almost all of the capacity for new offices under the city’s cap, imposed by a decades-old ballot measure known as Proposition M. About 20,000 square feet remain unallocated under the cap, according to Corey Teague, zoning administrator for the city of San Francisco. That space will be rolled over into 2020’s total allocation.

That’s a sudden change of pace for a city that expects more than 4 million square feet of completed development this year, according to CoStar. It could make Oakland, across the San Francisco Bay, the biggest beneficiary of spillover demand from the booming tech industry as expanding companies seek more space.

In San Francisco, the office development annual limitation program dictates that for buildings larger than 25,000 square feet, a total of 875,000 square feet can be developed in a given year. In times when development is slower, unused allocations can be rolled over to the next year. Since the end of the recession, the city has been working its way through a large pool of unused square footage built up from when there were few, if any, requests for development.

This year, that bank of space finally ran dry, and the planning commission granted only about one-third of the office space developers requested, leaving demand for office space development far outpacing supply.

“Office demand in San Francisco continues to be as strong as ever,” Christopher Roeder, international director at brokerage JLL in San Francisco, said in an email. “Companies of all sizes, start ups, Silicon Valley-based or what we call ‘new age SF headquarter companies’ continue to expand, hire, and increase their presence in the city to differentiate themselves from other employers and recruit and retain talent.”

Almost 9 million square feet of new office projects are in various stages of the development planning pipeline, but only about 2.9 million square feet were available for city approval. Developers of those projects not selected can either wait for next year’s allocation, and hope for a better outcome, or try to seek rezoning to develop land they own for another use, though doing so is difficult and rare. In 2020, the allocation will be about 895,000 square feet, including the yearly allowance and 20,000 square feet remaining from this year.

The projects that have been selected are The Flower Mart, a 2.3 million-square-foot project by developer Kilroy Realty, with an initial phase totaling 1.4 million square feet; 88 Bluxome St., a mixed-use building with 775,000 square feet of office space planned by developers Alexandria Real Estate Equities and TMG Partners; and 598 Brannan St., a mixed-use project with 711,136 square feet of office space by developer Tishman Speyer.

All three projects are located in the city’s South of Market neighborhood, where average annual rents top out at about $80 per square foot, according to CoStar data.

Building Boom

In 2015, San Francisco had more than 5 million square feet of construction underway, according to CoStar data. Among those projects are skyline-altering buildings, such as the 61-story, 1.4 million-square-foot Salesforce Tower that opened last year at 415 Mission St. and is mostly occupied by the tech company that shares its name.

The amount of new construction in the city has dropped off this year, which is expected to exacerbate the supply-demand balance that exists in the city as tech companies grow and snap up what new real estate that is developed as soon as its completed, and sometimes even sooner.

Competition for new space has reached such an intensity that social media company Pinterest signed on for one of San Francisco’s largest leases in its history at 88 Bluxome St. before the project was even approved.

The level of demand is illustrated by the fact that vacancies in the city fell even as new developments took root, with the vacancy rate in San Francisco dropping to 5.5% today from 8.3% in the third quarter of 2013 before the building boom began in earnest.

“In total, roughly 76% of the market’s under-construction inventory has been pre-leased, ahead of the US national average and ranking San Francisco among the strongest markets in the country for preleasing,” reads a CoStar Market Analytics report about San Francisco. “Less than 2 million square feet of office space currently under construction throughout the metro is available for lease.”

While the change in development isn’t expected to stop companies from expanding or moving in to the city, or trying to at least, companies seeking ample new space are left only a few options. Some are looking to buy buildings, such as e-cigarette marker Juul, which acquired 123 Mission St. this year, while others may wait until next year in hopes of scooping up newly allocated developments.

“We’re seeing tenants employ a variety of tactics to ensure their ability to grow in the city amid tightening market conditions,” said Roeder.

But now that the allocation is used up, developers may start looking east, further boosting the profile of Oakland, which has already benefited from the slow creep of San Francisco’s real estate activity across the Bay Bridge.

A Train Ride Away

“The outflow based on demand is going to be to the Oakland central business district rather than Silicon Valley, mainly because it’s a 15-minute [Bay Area Rapid Transit] ride and Silicon Valley is harder to get to,” said Jesse Gundersheim, CoStar’s director of market analytics for the San Francisco Bay Area.

Colin Yasukochi, director of western region research at Los Angeles-based commercial real estate firm CBRE, agreed.

“Oakland is the biggest beneficiary of lack of capacity in San Francisco,” he said in an interview. And increasingly companies that are heading to Oakland are tech companies, he said, such as Square, the digital payment company that said in January it would lease a 350,000-square-foot building in downtown Oakland.

And while some may look to Silicon Valley south of San Francisco as an alternative to develop, most of the projects underway there are a result of organic growth from companies and developers who want to be in the smaller cities that make up the nation’s tech capital rather than those that simply can’t find a way into San Francisco, Yasukochi said.

Development in Oakland has been more measured than in San Francisco.

Office building development in the greater East Bay area today is equivalent to about 1.5% of the market’s total existing inventory at about 1.4 million square feet, according to CoStar. About half of that has been preleased. It’s helping developers feel optimistic about building in cities such as Oakland, which only had about 18 downtown properties listing space to accommodate a tenant seeking 20,000 square feet in April.

“The majority of this space under construction speculatively is concentrated in downtown Oakland, where two new skyscraper office buildings are helping redefine the city’s skyline, along with a multitude of multifamily buildings,” reads a CoStar Market Analytics report. “The office buildings under development secured anchor tenants prior to breaking ground, but still contain available space as delivery approaches. Several buildings in Oakland have been completely renovated into creative office spaces, breathing new life into the growing city.”

Posted on August 18, 2019 at 3:14 pm
Cara Milgate | Posted in Commercial |

Vermont Apartments in Oakland, California, Sells 8-9-2019

Real Estate Investment Firm Buys Grand Lake District Property

The Grand Lake District in Oakland, California, is located in the northeast corner of Lake Merritt. (CoStar)
The Grand Lake District in Oakland, California, is located in the northeast corner of Lake Merritt. (CoStar)

The Vermont Apartments in the Grand Lake District of Oakland, California, has sold to a real estate investment firm.

Veritas Investment purchased 888 Vermont St. from Estopinal Family Partners for $14 million, or about $365 per square foot, in an all-cash deal.

Built in 1968, the three-story, 38,405-square-foot building is located on nearly half an acre of land. The building comprises a mix of studio, one- and two-bedroom apartments and was 98% leased at the time of sale, according to CoStar data.

The deal was part of a 1031 exchange for Estopinal Family Partners. The other half of the deal was not disclosed.

Timothy Warren, Alex Lin, Randell Silva and Kent Mitchell of NAI Northern California in Oakland represented the buyer and the seller in the Vermont Apartments transaction.

Posted on August 18, 2019 at 3:13 pm
Cara Milgate | Posted in Commercial |

Oakland Apartment Development Surges Ahead of San Francisco 8/14/2019

Market Stat: Construction Set to Outpace All Bay Area Neighbors

For years, Oakland has sat in the shadow of Bay Area giant San Francisco. That's changing. (iStock)
For years, Oakland has sat in the shadow of Bay Area giant San Francisco. That’s changing. (iStock)

Oakland, California, is on the verge of a housing renaissance.

Apartment completions in Oakland are now set to outpace rival cities throughout the Bay Area in 2019, and most likely in 2020 and 2021 as well based on the construction pipeline.

It’s another sign that the commercial real estate industry is looking east now amid complaints the San Francisco market has become overcrowded and overpriced.

Nearly 1,800 units have already been completed so far this year in the Oakland metropolitan area, and CoStar research is currently tracking 5,375 apartment units under construction now. That’s more than San Francisco’s 4,373, San Jose’s 3,557, Santa Clara’s 2,398 and Fremont’s 1,424.

And with more than 10 projects in excess of 200 units in Oakland, most downtown, the new properties in the pipeline will redefine the city’s skyline.

The most prevalent developers in the East Bay city include: Holland Partner Group, the Hanover Company, Lennar Corporation and San Francisco-based Carmel Partners.

Development in Oakland reached a cyclical peak in mid-2018, when more than 7,400 units were under construction. More than 1,300 units were completed that year.

Construction levels are expected to fall moving forward, as the current crop of developments reach completion.

Due to rising construction costs, and perhaps cognizant of the vast amount of apartments reaching completion simultaneously, developers have recently shown signs of restraint. Construction starts were rampant in 2017, but fell dramatically in the second half of 2018 and remain subdued in 2019.

Rental rates at the new properties come at a hefty premium compared to older apartments and currently average: $5,099 for three-bedroom, $4,017 for two-bedroom, $3,177 for one-bedroom, and $2,767 for studio units.

Posted on August 18, 2019 at 3:11 pm
Cara Milgate | Posted in Commercial |