May 16, 2018
By Dennis Kaiser
Many believe the commercial real estate market is nearing the end of its current growth cycle. Connect Media asked JLL’s Andy Poppink, who is speaking at tomorrow’s Connect Bay Area, to share his thoughts on what’s driving CRE decisions today in the Bay Area. There’s still time to register and join us for the conference coming up May 17th at Galvanize San Francisco.
Q: What are some of the biggest factors influencing real estate decisions in the Bay Area today?
A: Supply and demand drive the market. Demand remains strong and supply tight, especially for major public transit-served submarkets. That said, as you dig deeper into what influences supply and demand, there are a few more recent phenomena at play. First, as this extended expansionary cycle continues, the supply of construction labor is tight while construction demand is near all-time highs. As a result, construction costs continue to rise. This increase in costs to build are impacting new development, value-add repositioning projects and tenant interior improvements. Second, the rise of co-working space as a solution to flexible and capital constrained requirements is satisfying a real demand for many occupiers. As such, investors, developers, and occupiers are all trying to determine what their strategy should be as it relates to flexible work space.
Q: How are occupiers viewing the Bay Area markets?
A: Companies compete fiercely for the Bay Area’s skilled labor force. Many see it as critical to keep core functions in the Bay Area. That said, given the high cost of Bay Area talent and the challenges with recruiting and retaining people, many companies are beginning to evaluate talent pools outside of San Francisco and the Silicon Valley markets. More and more companies are looking not only to Oakland and the East Bay, but also to alternative markets outside of California where the talent, labor, and cost of living are relatively more accessible and more affordable.
Q: Where do you see Bay Area real estate headed in the next 12-18 months?
A: We are continually tracking local and global economic dynamics that influence real estate. Despite constant questions about the extended duration of the cycle, we do not see any clear warning signs of an imminent downturn. Of the broader leading indicators for changes in the economic cycle, none point to high near-term risk of recession at this moment. For the Bay Area specifically, the technology sector’s influence has become so ubiquitous that a slowdown of one area of the industry is often countered, if not created, by another emerging technology spawned through the area’s continued innovation. The Bay Area has the remarkable ability to continually reinvent itself.
For comments, questions or concerns, please contact Dennis Kaiser