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Bay Area Research Rant: Chinese Alphabet Soup Doesn’t Mean Much if You Can’t Afford the Rent

By Garrick Brown, Vice President of Research – West Region

This week Google went Alphabet, the Chinese AlphabetYuan went south and local rents went up… well that last one is no big news. They keep going up. The good news for San Francisco renters is they keep going up everywhere and at least here incomes are showing some signs of life.  That isn’t the case everywhere (Bloomberg ran this piece this AM which found that Los Angeles residents spend a dangerous 49% of their income on rent). Regardless, none of these things have all that much to do with one another except me trying to slap them all together in a catchy title which is either a really good or really bad new product idea. That being said, there actually isn’t a Chinese alphabet… just a huge pool of characters that vary (it is estimated that there may be 50,000+ written Chinese characters though 30,000 of those are rarely used). But I digress… since I am not about to quit my day job to become a soup entrepreneur, I will leave that to the more adventurous among you.  If it works out, you can send me a check later.

Let’s start with the devaluation of the Chinese Yuan.  I tackled that subject on my retail newsletter this week and you can read that by clicking here. But one of the likely impacts of that trend is a slowing of exports and the two places where we might see the greatest impact are in the tech and agricultural sectors. Regardless, we are currently still talking about a devaluation of less than 4%. If it weren’t for the fact that Chinese fiscal policy is so tightly controlled, this wouldn’t be big news.  The big question is how far the People’s Government will let their currency fall… probably not something that would impact local tech companies by huge amounts until we start to see the devaluation crossing into double digits… and that just doesn’t seem incredibly likely.

But the other big news of the week was Google’s big Alphabet announcement.  On Monday, the Bay Area behemoth announced that all Google stocks are being transferred to a new holding entity called Alphabet. Basically anything Google that was far afield of their main Internet products is being spun off into separate entities under the Alphabet umbrella.

This is easily Google’s biggest move in a decade and it makes perfect sense.  Google itself gets to be slimmed down while spinning off their driverless car, life science, venture capital and other units means that each group will be better able to remain focused on their core businesses with, most importantly, their own CEOs and leadership.  This last point is what I believe to be one of the driving factors here.  This is about retaining top talent and keeping these spinoffs entrepreneurial.  But there is something else here that is huge and this goes back to some of Google’s founding principles. Ari Applbaum has a great piece in this week’s Venturebeat that tackles the topic and explores the other big reason for the move: branding.

All of this is interesting reading and all of it has implications for the Bay Area economy.  But none of it has the same impact as the continued headlines we see about the cost of living here and the impact of our housing shortage.  I know I am a broken record here, but the biggest threat to the region’s economy is not what is going to happen in Asia, Greece, Puerto Rico or wherever.  It’s not (currently) an asset bubble… though this is going to become an issue eventually if current trends persist.  The biggest threat today is the region’s housing shortage and the affordability issues it is creating that are going to make it harder and harder for the region to compete against other “cool” cities known for attracting the millennial tech workforce.  Places like Seattle, Austin and even San Diego and Denver here in the West… not to mention numerous spots east of the Mississippi.  But, at least in San Francisco, it appears that supervisors are getting the message—check out the great piece from Cory Weinberg of the San Francisco Business Times in our Stories of the Week. Sadly, this hasn’t been the case everywhere.

 

This post is commentary from the latest weekly edition of our Bay Area Research Rant, which you can subscribe to for free by e-mailing garrick.brown@dtz.com

 

BrownGarrick joined DTZ (Cassidy Turley) in October 2010. He serves as Vice President, Research in the Western US for DTZ as well as our retail division in Northern California, DTZ Retail – Terranomics. He speaks frequently at industry events and has been a keynote speaker at symposiums, conferences and market forecasting events for groups like the Appraisal Institute, Urban Land Institute, CREW, ICSC and PRSM. He is also a member of Lambda Alpha International, an invitation-only land use society for those who are involved in the ownership, management, regulation and conservation of land, but also those who are involved in its development, redevelopment and preservation.

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