By Robert Sammons, Senior Director, Northern California Research
In what was certainly one of the most underplayed stories in the local press over the past week, the San Francisco Planning Commission passed the Central SoMa rezoning plan unanimously. The process has been ongoing since 2011 though it hasn’t quite reached the finish line yet. It now awaits passage by the San Francisco Board of Supervisors – likely over the summer. Of course, there is an election for a new mayor in early June so anything could happen. And let’s not forget that all of the office product is subject to Prop M as it currently stands which means, that with only about 2.0 million square feet in the queue, development opportunities will be limited. There has been talk that an initiative could make the ballot in November to push ahead and prioritize properties within Central SoMa for Prop M allocation but that’s currently looking less likely.
That news along with the next two articles are anxiety-inducing for those tenants looking for big blocks of space in San Francisco (with our tenants in the market figure totaling about 5.0 million square feet!). Facebook looks to be taking down the last mega-block available in San Francisco for some time to come, leasing all 750,000 square feet of Park Tower which delivers later this year. By our count, there “could be” 10 blocks of 150,000 square feet or more between now and 2022 or so (yes that’s it!). With a national and local economic expansion nearing a record run, with full employment, with a vacancy rate tumbling, with net absorption soaring and with Prop M putting a cap on office construction, the market is likely going to be quite tight barring a recession of some sort. Oakland will act as somewhat of a relief valve, though the ability to add much to its inventory is limited. Further away, Silicon Valley has more room – especially transit-oriented San Jose. There’s sure to be some ebb and flow over the next two to three years in the economy (that wouldn’t necessarily be a bad thing) but at the moment it’s looking awfully tight out there.
Which takes us to the next few articles on tech companies skittish about high taxes at their home bases. A tax on large businesses just passed the Seattle City Council while one of our own cities down in Silicon Valley is considering something similar. Meanwhile, a San Francisco-based company is expanding elsewhere thanks to tax incentives being offered (you recall last week AllianceBernstein announced it would relocate much of its operation from high tax/high cost New York City to low tax/low cost Nashville). Chasing lower costs and tech talent is a reason that Apple is circling either the DC area or North Carolina and why Amazon is looking beyond Seattle at the moment.
Obviously, tech still wants to grow in San Francisco (see Facebook story above!). But the issues regarding housing costs, transit and, now, minimal readily available office product is making that difficult. The Bay Area is incredibly talent-rich and will remain so. We will doubtless remain the tech capital but we will also watch tech continue to grow at a fast clip across many other markets. It doesn’t hurt that much to share the wealth and there has to be a better way to solve the various crises we find ourselves in (public-private partnerships?). But we don’t want to bite the hand that feeds us either.
This post is commentary from the latest weekly edition of our NorCal Newsline, which you can subscribe to for free by e-mailing email@example.com.
Robert Sammons is Cushman & Wakefield’s Senior Director, Northern California Research. Based in San Francisco, Robert’s principal roles include working closely with the C&W research teams across the Northwest – including Northern California, Portland and Denver. Robert is author of numerous documents that delve into a wide variety of real estate and economic trends. He has been a quoted source for all manner of real estate and related economic information in many widely known media outlets across the country. Robert has 29 years of real estate experience as both an appraiser and researcher. He earned a BBA in Real Estate from The University of Georgia and an MS in Real Estate from Georgia State University. Robert is a member of the Urban Land Institute.