Mass Transit is King


by Brent Carroll

Mass Transit is King

Mass transit is factored into every office real estate decision—whether it’s the property owner, the tenant, or the employee.  And with a greater flight to social responsibility and reducing the carbon footprint, the demand for office space near mass transit will become one of the top deciding criteria.

San Francisco is one of the most iconic mass transit-serviced cities in the country. Employees come from all over the Bay Area via the BART or Caltrain; it’s critical to be centrally located and accessible by the masses.  People enjoy mass transit because it affords them fluid urban living, while businesses are easily connected with their partners and clients in other markets.  For example, a technology company located in San Francisco may have a client in Oakland.  Access to Oakland for a meeting is as simple as one BART ride away (~20 minutes).  There is no need for a vehicle in this case.

Walk-to-rail office buildings are very desirable, and in fact, in areas like California’ Silicon Valley, more than 75 percent of all office development currently under construction are within walking distance of a rail line—of which more than 50 percent of the space is already preleased. This is not surprising. It’s simple: people and companies want to be connected and want accessibility, even if it comes at a price. There is typically a premium paid for access to mass transit that is within walking distance, five to 10 percent higher on average in markets like the Bay Area.

In the Bay Area alone, volume for BART and Caltrain exploded by 96 percent and 39 percent respectively since 2000.

Ridership have skyrocketed in the last several years. In the Bay Area alone, volume for BART and Caltrain exploded by 96 percent and 39 percent respectively since 2000. At KBS’ 201 Spear Street property, an iconic Class A LEED Gold office tower located just off the waterfront in San Francisco’s South Financial District, has seen the effects of increased ridership. Situated just two blocks from the Embarcadero BART station, most if not all tenants at 201 Spear have employees that use BART for their daily commute. The property is currently 99-percent occupied.

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The impact of mass transit on local metros is tremendous. It attracts employers and commercial/retail hubs, which draw job seekers and home buyers to the area, driving up demand, home prices, and the cost of doing business. As we look ahead, mass transit will continue to shape office development and tenant activity. In fact, the demand might become great enough that unused rail roads will be repurposed to keep up with today’s active landscape. In the Bay Area, tech companies continue to fuel growth throughout the region. BART stations currently under construction in San Jose, Fremont, and Milpitas will better connect the three submarkets, which will give rise to increased office demand and leasing activity. Asking rents in those areas have already grown eight to 12 percent over the last two years, and at this rate, should continue its award trajectory.

 

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Brent Carroll is a senior vice president for KBS responsible for acquisition and management of commercial properties in the San Francisco Bay area.  Currently Brent manages a portfolio of office properties totaling approximately 3.0 million sq. ft.