By Robert Sammons, Regional Director – Northwest U.S. Research
I had the privilege of being a presenter at the Transit Oriented Development & Urban Real Estate Conference in Los Angeles last week (to see a few slides from my presentation click here). Now L.A. is not exactly the first place you’d think of for TOD but in reality there’s a lot of mass transit (rail) in place and more to come. And that (rail) transit has driven a lot of development across the entire region. In addition, the focus was not just L.A. or just on rail but on what’s happening around the country regarding TOD and the move away from the automobile. And there is a LOT going on! Of course, TOD isn’t happening everywhere as, according to the U.S. Census Bureau well over 80% still drive to work today. Not surprisingly, that number begins to slide lower the more urban the environment and the younger the worker. And let’s not even begin to talk about self-driving cars at this point though they will be a factor moving into the next decade.
So what the heck did I speak about last week? Well I took a look at how popular TOD had become in the Bay Area and, further, how TODs (in this case, office) can actually command a higher rent and have a lower vacancy rate. That was my thesis and, low and behold, for the most part it’s true. So that I was not completely NorCal focused, I did branch out and look at other markets too.
There are a few major U.S. cities – New York (Manhattan), Boston, Chicago, Philadelphia, Washington D.C. – whose cores could each be considered one massive TOD. In San Francisco, buildings within walking distance to BART (regional) or MUNI (City) rail stations certainly benefit. And more is to come in the City by the Bay with the new Central Subway line under construction and the Central SoMa up-zoning going on all around it. Oakland, meanwhile, has become the poster child for a market that has boomed in large part due to mass transit access (BART). Without that benefit, even with lower prices, it could not have easily taken advantage of the higher San Francisco prices which drove out a lot of cost sensitive employers and many of their employees dependent on mass transit. And in Santa Clara County (San Jose and beyond), there are now some 42 miles of light rail with developments often focused on sites near stations. Hey, San Jose and its Diridon Station might be one of the first hubs for California high speed rail!
I find the more interesting dynamic underway, however, is in regard to what we once thought of as more suburban markets. Those that are more successful today generally are much more mixed-use and have access to some sort of mass transit. Additionally they are walkable and bike-able environments.
For the San Francisco Peninsula, submarkets with good access to Caltrain, see office buildings generally commanding a higher asking rent and achieving a lower vacancy rate. Out in Alameda and Contra Costa counties in the East Bay, properties with good access to BART are performing better on average than those areas that require driving or at the very least a shuttle bus service. That same energy is happening in suburbs from northern Virginia and southern Maryland to Atlanta to Denver where rail – whether heavy or light – is “driving” a significant portion of the development.
I’m not looking at all of this through rose-colored glasses. First of all, you actually NEED mass transit (rail) and that tends to be VERY expensive at the front end. And that transit needs to work efficiently which is certainly not always the case in the Bay Area as I can personally attest. But expect more of it to come (especially in congested areas) plus less expensive projects such as biking and walking paths. Sure gasoline prices have fallen but I don’t believe TOD is really a trend but more of the work, live, play atmosphere the U.S. has finally begun to adopt from much of the rest of the western world. From millennials to boomers and beyond, the TOD has taken hold because it tends to be more sustainable/green, it pulls in talent and it increases the quality of life.
This post is guest commentary from the latest weekly edition of our Bay Area Research Rant, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
Robert Sammons is a Research Director for Cushman & Wakefield. 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.