Oakland Chamber of Commerce 2015 Economic Development Summit The Oakland Advantage Garrick Brown Commercial Market Overview Oakland Convention Center Oakland, CA March 20, 2015 Vice President, Research Western United States Garrick.Brown@dtz.com
Bay Area Today Competitive Advantage 1 st (San Jose) in job openings per unemployed 2 nd (SF) & 3 rd (San Jose) in office using job growth in 2014 1 st in global technology companies 2 nd in educational level (SF) 1 st in income growth (San Jose) 1 st in venture capital funding 2 nd lowest office vacancy (SF) 1 st in office rent growth since 2010 (SF) 3 rd in net absorption of office space since 2013 (San Jose) 3 rd lowest unemployment (SF metro division)
Industrial & E-Commerce
Bay Area Industrial Supply & Demand 3,000,000 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 (500,000) (1,000,000) Annual Occupancy Growth 2010: 80K SF 2011: 915K SF 2012: -32K SF 2013: 3.0 MSF 2014: 6.0 MSF 10% 8% 6% 4% 2% Net Absorption New Construction Vacancy Source: DTZ Research 4
Industrial is Booming! 2015 2020 Will Set Records 153M 151M Top 5 Years Net Absorption (MSF) 147M 138M 130M 1997 2014 1995 2013 2005 Source: Costar Group, DTZ Research
Bay Area Industrial Vacancy & Rents 10% 9% 8% 7% 6% 5% 4% 3% $0.70 $0.65 $0.60 $0.55 $0.50 $0.45 $0.40 Vacancy Avg. Asking (NNN) Source: DTZ Research 6
help Bay Area Industrial Net Absorption San Francisco -77K Sonoma 139K San Mateo 194K Napa -19K Solano 277K East Bay 3.3M Sacramento 2.8M San Joaquin 2.2M Stanislaus 1.2M Santa Clara 844K
help Bay Area Industrial Vacancy Little Quality Left San Francisco 2.7% Sonoma 8.0% San Mateo 4.1% Napa 4.6% Solano 12.3% East Bay 4.0% Sacramento 10.2% San Joaquin 8.6% Stanislaus 5.3% Santa Clara 8.7%
help Bay Area Industrial Rents Rents Skyrocket on Coast San Francisco $1.21 Sonoma $0.73 San Mateo $0.90 Napa $0.78 Solano $0.45 East Bay $0.64 Sacramento $0.35 San Joaquin $0.32 Stanislaus $0.31 Santa Clara $0.58
Industrial Erosion of Base 13.9 MSF Demolished since 2002 7.5 MSF Replenished since 2002 Greater Bay Area: Alameda, Contra Costa, Marin, San Francisco, San Mater, Santa Clara Counties Source: DTZ / Costar Group
help Industrial Construction Way Behind the Curve!!! San Francisco 82K SF Sonoma 70K SF Napa 1.2 MSF San Mateo 0 Solano 177K SF East Bay 3.8 MSF Sacramento 1.1 MSF San Joaquin 1.9 MSF Stanislaus 0 SF Santa Clara 0
help When the Bay Gets Too Hot Move Inland 1995 2005 Sacramento Metro Population Increased 225K 70% +/- Bay Area Transplants Valley (Stockton to Fresno) Population Increased 120K 60% +/- Bay Area Transplants
Let s Talk About Millennials! 13
Let s Talk About Millennials! Now the largest consumer group 100 Total population in US (millions) 80 60 40 20 0 Generation Z Millennials Generation X Baby Boomers Greatest Generation Source: US Census Bureau
Millennials! Fact & Fiction Do They Really Prefer Urban Living? Do They Really Prefer Smaller Spaces Do They Really Prefer Renting Over Owning Will They Continue to Put Off Starting Families? Don t mistake current millennial preferences or patterns of necessity for being permanent
First Comes Love Mean Age First Marriage 35 Waiting Longer to Marry 30 25 20 2014* 2010 2000 1990 1980 1970 1960 1950 1940 1930 1920 1910 1900 Source: US Census Bureau *Estimate Women Men
The Clock is Ticking US Birth Rate per 1,000 Population 15 14 Fell During the Recession Have Yet to Increase Improving Economy? 13 Source: Centers of Disease Control, DTZ Research *Preliminary 2014* 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993
Generation Zed Will Differ Significantly From Millennials Tech Reliance/Expertise will be Greater Education Levels (and Student Debt) Likely Lower
Millennial Preferences Likely to Change Average Workforce Age IBM 44 Apple Google Twitter Facebook 33 31 30 26 Source: PayScale, DTZ Research Will they still prefer urban living after they marry and have kids?
help Bay Area Office Vacancy Sonoma 15.9% Sacramento 14.2% San Francisco 6.0% Marin 13.8% San Mateo 12.2% East Bay 14.2% San Joaquin 12.2% Stanislaus 12.1% Santa Clara 10.1%
help Bay Area Office Occupancy Growth Sonoma -33K Sacramento 825K San Francisco 3M Marin 125K San Mateo 1.2M East Bay -275K San Joaquin 209K Stanislaus 46K Santa Clara 1.6M
help Bay Area Office Rents Sonoma $1.61 Sacramento $1.58 San Francisco $5.19 Marin $2.55 San Mateo $3.86 East Bay $2.29 San Joaquin $1.20 Stanislaus $1.28 Santa Clara $3.26
The 20 Minute Rule Tenants Want SF Addresses for VC Funding Only companies within a 20-minute commute of the venture capital firm s office are considered worthy of a high-risk investment Given the hands-on demands of venture capitalism, proximity to clients, investors and colleagues is highly prioritized. --Dr. Richard Florida 23
Tech Clustering Collaboration = Innovation 24
Tech Product Pipeline The Profit is Still in the Product Apple Q4 2014 The Most Profitable Company in Human History Stores Average $4,550 PSF* $18B - Q4 2014 Profit $178B Cash Reserves It s Good to be Apple Source: Apple Investor Relations DTZ Research
Insane Cranes Salesforce Tower 415 Mission Street 1.4 Million SF 222 2 nd Street 452K SF 350 Mission Street 451K SF Transbay Transit Center 181 Fremont Street 416K SF 26
But Still Not Enough in SF 4.1 MSF Under Construction 75% Already Pre-Leased 15% in Negotiation Still 18 Months from Peak Deliveries 27
Demand Still Hot in Bay Requirements Up Everywhere Demand Trends We are tracking 17.1 million SF of Office & R&D requirements throughout Bay Area. This number is up 10% from last year. We are tracking 3.9 million SF of current space user requirements in San Francisco. 28
Eastward Ho! Why Oakland is the Next Brooklyn and the Central Valley is about to Surge
Bay Area Apartment So Hot it Burns? 7% 6% 5% 53.6% Rental Rate Growth Since 2010 $2,600 $2,400 $2,200 $2,000 4% 3% $2,315 $1,800 $1,600 $1,400 2% $1,200 4Q 2014 4Q 2013 4Q 2012 4Q 2011 4Q 2010 4Q 2009 4Q 2008 4Q 2007 4Q 2006 4Q 2005 Vacancy Avg. Asking Rent
Silicon Valley Apartment Rents Flattening 7% 6% 5% 4% 3% 59.3% Rental Rate Growth Since 2010 $2,315 $2,900 $2,700 $2,500 $2,300 $2,100 $1,900 $1,700 $1,500 2% $1,300 4Q 2014 4Q 2013 4Q 2012 4Q 2011 4Q 2010 4Q 2009 4Q 2008 4Q 2007 4Q 2006 Vacancy Avg. Asking Rent
Peninsula Apartment But Will Rents Go Backwards? 7% 6% 5% 4% 3% 59.1% Rental Rate Growth Since 2010 $2,315 $2,900 $2,700 $2,500 $2,300 $2,100 $1,900 $1,700 $1,500 2% $1,300 4Q 2014 4Q 2013 4Q 2012 4Q 2011 4Q 2010 4Q 2009 4Q 2008 4Q 2007 4Q 2006 Vacancy Avg. Asking Rent
San Francisco Apartment More Expensive than New York 7% 6% 5% $3,500 $3,300 $3,100 $2,900 $2,700 4% $2,500 3% 2% $2,315 55.2% Rental Rate Growth Since 2010 $2,300 $2,100 $1,900 4Q 2014 4Q 2013 4Q 2012 4Q 2011 4Q 2010 4Q 2009 4Q 2008 4Q 2007 4Q 2006 Vacancy Avg. Asking Rent
Manhattan Apartment Trend Look Familiar? 5% 4% 3% 2% 1% Double Digit Rental Rate 1995 to 2000 $2,600 $2,400 $2,200 $2,000 $1,800 $1,600 $1,400 $1,200 0% $1,000 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 Vacancy Avg. Asking Rent
Alameda Apartment Vacancy at All Time Lows 8% Pace of Rental Rate Growth Accelerating Not Slowing $2,100 7% 6% $1,800 5% 4% $1,500 3% 2% 2007 2008 2009 2010 2011 2012 2013 2014 $1,200 Vacancy Avg. Asking Rent Source: RealFacts, DTZ Research
Northgate Adams Point Grand Lake / Lakshore Glenview Mosswood Uptown Cleveland Heights Lake Merritt Highland Hospital West Oakland City Center Chinatown Civic Center East Lake East Oakland Jack London Sq. Embarcadero
Construction Pipeline Development Trends 2012 2013 2014 U/C Proposed Alameda 714 930 984 1,803 8,425 Contra Costa 634 54 309 821 3,063 San Francisco 880 3,107 1,111 7,140 14,528 San Mateo 109 535 814 2,382 2,220 Santa Clara 2,880 4,284 2,486 5,930 7,686 Marin 0 61 0 180 230 Napa 78 0 134 0 1,067 Solano 0 60 465 0 0 Sonoma 68 51 281 288 0 Bay Area 5,363 9,082 6,169 18,544 37,219 Largest Construction Pipeline We ve Ever Tracked
Housing Affordability % Residents Can Afford to Buy Median Priced Home 2012 2013 2014 Alameda 28 25 18 Contra Costa 27 24 19 Marin 22 20 14 Napa 38 34 25 San Francisco 19 17 14 San Mateo 19 17 14 Santa Clara 27 24 19 Solano 56 53 41 Sonoma 33 31 27 California 46 43 41 United States 60 58 56
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