By Robert Sammons, Senior Director, Northern California Research
Why has TOD become the mantra of the day? A variety of reasons really – everything from it simply being an additional convenient option in getting to and from a mixed-use workplace environment to the fact that more people coming of driving age are preferring to get around via other methods (whether that be rail or car-share or biking or walking). You can likely throw in time management and cost as well. Employers see it as another selling point to potential employees if they are walkable or bike-able from a rail stop. And with the Bay Area essentially at full employment, a company needs all the advantages it can muster to land qualified employees.
Over the past couple of decades, the urbanized markets across the U.S., particularly those with convenient rail transit options, have been pulling in tenants at a speedier pace (pun intended) than those without and, in fact, that has only accelerated. But it’s not just the mega-markets that have been successful as transit-oriented suburbs have become more popular as well. For the Bay Area, the wave began with San Francisco thanks to convenient BART (regional rail), Muni (city rail) and Caltrain (regional rail) access. More recently, the trend has expanded to Oakland with two BART stops within its central business district which allows for ease of access to other parts of the East Bay but also to San Francisco and beyond. In fact, the oft-quoted rebirth of Oakland has, in large part, its access to BART (and Amtrak) to thank. It has created a boom not only for new office development but for a huge wave of housing within its core. Yes there is a pricing gap between San Francisco and Oakland which has pushed tenants to the East Bay but the major reason Oakland is able to benefit from those relocations is due to its convenience to rail between and beyond the two markets. We are also seeing the transformation along the Peninsula with submarkets very near a Caltrain stop outperforming those that are not. The issue with those submarkets is that they each have a relatively small office inventory with little option to grow much more (land availability and zoning constraints). That takes us to San Jose which, quite frankly, has been late to this party. It is catching up fast, however, and will absolutely be the downtown transit-oriented market to watch over the next decade. Its Diridon Station (connections to Caltrain, Amtrak and the local VTA light-rail system) make it amazingly convenient to the rest of the Bay Area – something both Google and Adobe are discovering with developments planned (admittedly much of it in the early stages). Eventually, BART will be coming through the core of San Jose and connecting to Diridon Station as well.
Of course, we don’t have a perfect system out here (all of you locals stop laughing now). It’s disjointed and needs serious upgrading. Trains are over-crowded and delays are frequent. Let’s not even talk about high-speed rail here which may one day actually exist (or not) or the potential Caltrain extension into Transbay Terminal in San Francisco which also may one day exist (or not). Longer range, there is the curiosity about the future role of autonomous vehicles (will it alleviate traffic on highways or will it be just as bad as it is today?).
Okay, with all of that we now present our latest Transit Effect Map of the Bay Area.
As you peruse the markets and the data (we stuck with Class A for this endeavor), a familiar pattern will present itself with the Downtown (aka transit-oriented) submarkets generally outperforming the markets as a whole. There are exceptions, however. San Francisco, with a larger downtown inventory than any other in the Bay Area, can expect its vacancy rate to tumble further this year thanks to buildings delivering at 100% occupancy—with asking rents already above the city as a whole; the Walnut Creek (BART) submarket has had a few blocks of smaller spaces pop up recently—plus it does have a rather small inventory—but is expected to outperform going forward with pricing already higher than the overall market; both Mountain View and Sunnyvale have a higher vacancy rate but also higher asking rents within the core, and that vacant space is likely to move rather quickly.
This post is commentary from the latest weekly edition of our NorCal Newsline, which you can subscribe to for free by e-mailing firstname.lastname@example.org.
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.