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Bay Area Research Rant: Unicorns, Glue Factories & Driverless Cars


By Garrick Brown, Vice President, Retail Research for the Americas

This week I wanted to leave you with Technologywhat I believe are the greatest challenges for the region’s economy ahead but I also wanted to share with you some reasons for optimism.

Certainly, I know a lot of you out there are concerned about the tech sector and valuations for all of these billion dollar unicorns being out of whack. I’ve heard from more than a few people who believe that a year or so from now the streets of San Francisco will run red with unicorn blood. I’ve even had a couple of guys say to me, “it feels like 2000 all over again…”

Are you kidding me? Look, there is no doubt there are some unproven startups out there that are going to fail. There will be a unicorn or two (or five or six) heading to the glue factory in the next 12 to 24 months. But let’s not get too confused. Growth during the dot.com boom was overwhelmingly driven by unproven, yet-to-be-profitable tech companies. We may have a lot of unproven startups out there right now but let’s not forget that of the 50 million square feet of occupancy growth (for office and R&D product) that has occurred in the Bay Area over the past five years or so that Google and Apple accounted for nearly half of that total. And if you haven’t looked lately, those are two of the most profitable companies in history. Throw in the additional growth from Salesforce, Facebook, LinkedIn, Amazon, Samsung, Microsoft and a dozen other major players—all of which are now also profitable and proven commodities—and we are talking about something close to about 85% of all the growth of the past five years.

My point is this… even if things were to get really ugly with all the startups out there we are not talking about anything even remotely close to what happened in the dot.com crash. And let’s not forget that all of this concern over unicorn valuations is probably a good thing. In the dot.com meltdown we had irrational exuberance even as the market started to drive off a cliff. These concerns, coming at a time when most of the market jitters have more to do with concerns over global economic worries (i.e. China) that generally tend not to impact us that directly (though our own occasional overreactions to those trends may be another story), will likely result in keeping us out of bubble territory. It’s the trends that no one sees coming or the ones that no one reacts to that worry me.

Regardless, this week’s articles are a hodge podge of what I see as being the real threats to the local economy… the twin issues of the skyrocketing cost of living and infrastructure that has not kept up with growth. Both of those factors threaten to chase business and job growth from the region.

What’s our ace in the hole? The world’s greatest concentration of tech talent, bar none. Enough so that Toyota recently announced that they would be investing $1 billion into artificial intelligence as it creates a new company, Toyota Research Institute, Inc. that will focus on robotics research, artificial intelligence and laying the groundwork for their driverless cars of the future. And they are centering that research here both here in Silicon Valley and in Cambridge, Massachusetts.

Ultimately, they chose the two deepest markets when it comes to tech talent in the United States over strong contenders like Seattle and Austin. This is despite the fact that both the Bay Area and Boston markets are facing similar challenges in terms of lagging public infrastructure and skyrocketing costs (though the rate at which housing prices have been increasing is similar in both markets, the Bay Area remains more expensive on the whole than the Boston metro). Ultimately the depth of tech talent in both places outweighed other options.

This is critical because autonomous vehicles will be the next big tech disruptor. And will we likely see the same trends with that technology that we saw with the companies in the smartphone, applications and social media field that drove Tech Boom 2.0 (i.e. startups wishing to cluster around the big fish)? I would bet yes. Am I saying that there will be a Tech Boom 3.0 that will be driven (literally and figuratively) by autonomous vehicles and that we are poised to be the epicenter of that revolution? Yes, I am.

But that’s certainly not a done deal. And it won’t be a done deal if we don’t address our housing shortage and affordable housing crisis. And it won’t be a done deal if we see our quality of life here deteriorate because of the lack of public investment in infrastructure whether we are talking about expanding public transit or finding ways to deal with traffic and congestion.

I will leave you with one last thought and that is my belief that the Bay Area economy is at a crossroads. Of course we are not immune to global and national economic challenges, but if anything kills our unicorns it’s more likely to be the multi-headed Hydra of housing and infrastructure than the impact of a slowing Asian or European economy… much less the blip that rising interest rates are likely to cause. Those are the problems we really need to deal with and I am a strong believer that if we do, we still have plenty of runway left in this cycle alone. We may be in the seventh or eighth inning on this cycle, but the game is tied and I think this one is going to extra innings. And even if I am proven wrong and we do end up facing a normal cyclical downturn over the next 18 to 24 months, odds are that it will be a lot closer to the kind of garden variety recessions that have been the norm over the past 60 years as opposed to anything approaching what we experienced in 2008. Which means that even if the prospects of a short-term down cycle are increasing, we cannot as a region put dealing with these issues on the backburner. That is true regardless of the economic circumstances that unfold over the next couple of years.

On a final note, due to the Thanksgiving holiday, there will be no Rant next week. But don’t worry, the Rant will be back with a double issue in the first week of December so you won’t miss any of the major commercial real estate news articles that run during that time. But while the Rant will be back, I won’t.

The focus of my work here at Cushman & Wakefield has changed over the past couple of months. I am now responsible for retail research for the U.S., Canada and Latin America. The reality is that I have my hands full. And while I will still be based here in Northern California, there just is no way for me to keep the Rant on my plate in my new role. That being said, I will still be publishing my weekly Retail Newsline publication (if you don’t get it but would like a subscription just drop me a line). And I may very well be adding some other retail related weekly publications into the mix in the months ahead. But it’s time for me to pass the Rant on to someone new, just as my wonderful predecessor Jim Scotland passed it on to me a few years back.

Robert Sammons will be taking over the Rant come December. Robert is a fantastic analyst that I have been friends with for nearly 20 years. I first met him ages ago when we both were with the Colliers organization; I was in Indianapolis and he ran research for New York City. We worked together when both of our respective firms helped to launch Cassidy Turley. He later moved to Cushman & Wakefield and then took over running the New York Tri-State region for Newmark. Almost two years ago he relocated to San Francisco to run research efforts for Cushman & Wakefield. Meanwhile, I was rising through the ranks first with Cassidy Turley and then with DTZ following our merger with them in January. And, as you probably know, DTZ and Cushman merged in September. One of the great consequences of this merger for me personally was the fact that I got to work directly with an old friend and colleague again. In the new Cushman & Wakefield, I am shifting away from running research in the Western U.S. towards my new role in retail while Robert is now our Regional Research Director for the Northwest.

He’s one of the best analysts in the business, a great public speaker and a hell of a good writer. And so with that, I would like to thank all of you for putting up with me over the past few years and I leave you in his extremely capable hands.

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@cushwake.com.

garrick-brownGarrick joined Cushman & Wakefield (formerly DTZ / Cassidy Turley) in October 2010. He serves as Vice President of Retail Research for the Americas. 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.

Robert_SammonsRobert 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.

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