The Bay Area/Silicon ValleyState of the Market 2018 June 29, 2018 Brent Carroll San Francisco’s housing shortage, along with its high cost of living, is spurring a migration away from the city. Those who are choosing to stay are looking for roommates: as of March 2018, San Francisco rents averaged $3,558, according to data from Rent Jungle. Home prices reached a high of $1.6 million during the first quarter of 2018. The migration destinations: Sacramento, Stockton, Tracy and Lathrop, among others. The State of California Department of Finance reports that in San Joaquin County (which includes Tracy, Stockton and Lathrop), housing units increased 4 percent to 243,420 as of January 2018. (compare that to 233,755 in 2010). During the same period, multifamily units in complexes with five or more units increased by 3 percent. Outside of the city, the living is easy (or at least easier): rents in Stockton, Tracy and Sacramento are half as much as San Fran (averaging $1,209, $1,781 and $1,412, respectively). The average home price: at least under $500K. Try buying a home in the city for that. This trend is bringing on the rise of the super commuter (getting up early to travel long distances between home and work; arriving home late). According to Bisnow, the bulk of super commuters into the Bay Area come from Stockton. As of 2016, about 10 percent of Stockton’s commuters were considered super commuters, reports the East Bay Times. However, don’t cry for San Francisco just yet. The city boasts strong economic growth as well as increasing wealth, according to a report from the Urban Land Institute. The big reason: the increase in high-paying jobs. ULI also reports that San Francisco continues to attract domestic and foreign investment, while neighboring Oakland benefits from having a lower cost of living compared to San Francisco. The report states that some investors prefer San Francisco to New York because of The Big Apple’s rising land costs. The San Francisco Center for Economic Development reports that the overall office vacancy rate finished the third quarter of 2017 at 8.5%, a very small increase from Q2 but a big increase from a year before. Overall net absorption was basically flat in Q3, totaling a negative 55,894 sq/ft, due to a lack of large block move-ins. Overall asking office rents increased to $70.51 per square foot in Q3, with CBD Class A direct average asking rents decreasing $0.38 per square foot, to $74.71 per square foot. A total of 5.1 million square feet was under construction at the end of the third quarter, with 1.8 million square feet of new construction scheduled to deliver in Q4 2017, including Salesforce Tower and 350 Bush Street. Some big players are in negotiation for the remainder of this space; the sweet result for these buildings would be reaching 100% occupancy. The largest transaction of Q3 was Facebook’s 423,000 square feet at 181 Fremont Street, where it will occupy the entire office portion in the first half of 2018. The second largest transaction in Q3 totaled 176,000 square feet: a lease to Amazon at 525 Market Street. Incidentally, Silicon Valley welcomes another 225K square feet for Facebook, residing in an eight-story building at 401 San Antonio Road. San Francisco’s flexible workspaces continue to be a world leader in square footage. The most expensive flex space in the city: the Financial District, with an average monthly cost-per-desk of $1,500, according to The Instant Group. Nob Hill weighs in at $1,192, South of Market at $998 and downtown at $950. San Francisco has seen an increase of 17 percent in flexible office centers (2016/17 v 2015/16). Meanwhile, in Silicon Valley, condominiums are becoming more in demand than the invention of the latest hot phone app. The housing shortage is seeing pricing increase into the double digits and time on the market has dwindled down to about two weeks. Polaris Pacific reports that condo prices increased 19.8 percent year over year, from December to February. The highest increase in condo prices: San Jose, at 26 percent. Also in San Jose is the first LEED-certified city in the Bay Area. It’s participating in the U.S. Green Building Council’s LEED for Cities certification program, allowing for citywide tracking of sustainability performance. San Jose also unveiled a Climate Smart plan in February with the goal of reducing carbon emissions by 1 million tons per year by 2030. Here are a few of KBS’ key assets in Northern California: 201 Spear Street San Francisco This office tower is located on the waterfront within San Francisco’s South Financial District. The property contains 252,591 rentable square feet and is situated in what is one of the nation’s top-performing office markets. The property is proximate to everything downtown San Francisco has to offer, including being just two blocks from the new $4.2 billion Transbay Terminal project, Market Street (and BART access), the recently revitalized Embarcadero promenade, the iconic Ferry Building and a number of the most impressive new high-rise residential towers in the country. Palo Alto Tech Center 1800-1850 Embarcadero Rd; 2445-2465 Faber Place Rd., Palo Alto This 259,586 square foot, 10-building office/R&D business park is located in the heart of Silicon Valley. The property is anchored by Stanford Hospital & Clinics, offers a prestigious address within close proximity to crucial financial infrastructure and is five minutes to downtown Palo Alto and Stanford University. The Almaden 1, 55, 99 Almaden Blvd, San Jose, CA This three-building office park is located on 5.81 acres in Downtown San Jose. Developed between 1980 and 1981, and renovated in 2006, The Almaden encompasses 416,126 square feet of office space and 1,264 parking spaces. Current tenant amenities include a small conference center, fitness center, and locker room with showers. The property is one of the closest office projects to Caltrain and within two blocks of a future underground BART Station. Two blocks from The Almaden is the pedestrian‐friendly San Pedro Square, which offers tenants a diverse collection of restaurants. Ten Almaden 10 Almaden Blvd., San Jose, CA Ten Almaden is a 17-story Class A office tower in downtown San Jose, California. The property’s lobby features a three-story atrium lined with a glass curtain wall that lets in light throughout the day. Current tenant amenities include a fitness center with pool and spa, locker rooms and a four-level parking garage. It’s located in an urban 24/7 live-work environment with over 2,200 new residential units built downtown and nearly 2,000 new units under construction. There are over 100 restaurants, coffee shops and bars located within walking distance of the property. Towers at Emeryville 1900, 2000 & 2200 Powell Street, Emeryville, CA This three-building, Class A office park is located on 16.1 waterfront acres across the bay from downtown San Francisco in Emeryville, California. Developed between 1972 and 1985 and renovated in 1998 and 2012, Towers at Emeryville is a trophy-quality property encompassing 815,018 square feet of office space. Current tenant amenities include an on-site cafe and bakery, a full-service bank, dry cleaners, car wash, state-of-the-art fitness center with locker rooms and conference rooms. The property is located near hotels, restaurants and public transportation. Situated directly along the Emeryville shoreline, Towers at Emeryville enjoys panoramic unobstructed views of the San Francisco Bay, the San Francisco skyline and the Golden Gate Bridge as well as downtown Oakland from virtually every floor — a unique trait within the market. Visible to the commuters that traverse Interstates 80, 580 and 880 every day, Towers at Emeryville sits on one of the most high-profile sites in the Bay Area. Brent Carroll is senior vice president and co-director of asset management for KBS . He is responsible for the performance and acquisitions of KBS assets and currently manages a portfolio totaling approximately 2.1 million sq. ft.