Op-Ed, Commercial Real Estate, Bay Area
greg fogg
TenantSee Weekly: Knowing Your When

We see a lot of confusion in the market around when to begin negotiations.  It’s not an insignificant consideration.  In fact, when you begin can make a huge difference in the outcome.  It’s understandable that tenants would not know when to start.  Brokers are not always keen to start at the right time, since compensation is derived by transacting and the closer the tenant is to lease expiration, the faster it will need to transact (and the fewer options it will have).  Good for the broker, bad for the tenant.  This creates a misalignment of interests that discourages thoughtful consultation on the front end – the more time a broker spends on a project, the lower the compensation. 

TenantSee Weekly: Knowing Your When
Op-Ed, Commercial Real Estate, Bay Area
greg fogg
TenantSee Weeky: A Big Decline in Rents, Four ...

Throughout 2020, the prevailing sentiment among investors in the San Francisco office market was one of relative optimism.  After all, despite the fact tenants were prohibited from occupying their buildings, they continued to collect full rent.  The buildings were full, with vacancy hovering around 4%.  Sure, companies weren’t happy about paying for space they couldn’t use, but business was good.  In many cases the tech sector (which makes up most of San Francisco’s office occupancy) was booming due to an even greater reliance on and usage of tech caused by pandemic driven changes in how people were living.  Throughout the course of 2020 there was no reason for San Francisco investors to panic, as few (if any) office occupiers were showing signs of developing long-term hybrid or remote-first strategies.  Most were simply focused on solving for ongoing operations as a temporary reaction to the pandemic.  Yet early indicators did point to a future in which companies would be shedding office space, as some expiring leases were not replaced.  This, coupled with the addition of new supply, caused a big increase in vacancy to nearly 12% by year end.  Despite this large uptick, the brunt of the sluggish demand dynamic was being felt in the sublease markets, where rental economics more accurately reflected the true state of the market.  Despite a total closing of the office market in 2020, average asking rents ended the year off just 6% from the pre-pandemic high.

TenantSee Weeky: A Big Decline in Rents, Four Years in the Making
Bay Area, Commercial Real Estate, Op-Ed
greg fogg
TenantSee Weekly: Modern Workplace Planning: ...

In the years leading up to the pandemic, most medium and small companies defined their office space need based on headcount (current and projected), space programming, and industry/sector norms.  The exercise was mostly formulaic.  The primary differences in the offices of a small, regional law firm compared to those of an AM Law 100 firm would be scale, the cost of finishes, and the quality of the building and views.  It was planning for the same outcome, just at different levels on the cost spectrum.  Companies having a larger portfolio of offices would typically create a “workplace strategy” that included guidelines around programming (e.g., space layout, office size, critical adjacencies, growth factor, finishes, FF&E, etc.).  These guidelines could then be used to inform the real estate process across geography.

TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part I: The Purpose
Bay Area, Commercial Real Estate, Op-Ed
greg fogg
TenantSee Weekly: This, or That?

Negotiations are always about (or should always be about) this or that.  There’s always something else, maybe that something else is nothing (as in sometimes the best thing to do is nothing at all).  Decisions made without proper consideration of all relevant alternative scenarios are decisions made poorly.  As important, in the context of office lease negotiations, the best negotiated outcomes are directly correlated to the extent to which we understand the alternatives of the landlord counterparty.  This is a bit counter intuitive, allow us to explain. 

TenantSee Weekly: This, or That?
Bay Area, Commercial Real Estate, Op-Ed
greg fogg
TenantSee Weekly: I Digress...

A little AI distraction to cheer your day (and relieve us of yet another discussion about workplace). Ever wandered through the streets and felt like you've stepped into the future? With their undeniable presence here in San Francisco, the driverless car is quickly becoming the most prominent representation of AI in our daily lives. If you spend any time in San Francisco neighborhoods, you can’t miss them. The other day, as I chatted with a neighbor, I counted 6 autonomous vehicles casually cruise by our front door within a span of 10 minutes. Intriguing, right? And today, in a twist of irony, I was held up by one. Blocked by a double-parked UPS truck, the driverless car hesitated, unsure about navigating into the lane of oncoming traffic. Of course, all the drivers in the opposing lane weren’t too keen to make space for the driverless car, as one normally would (or at least the more decent among us would) for a human-driven vehicle. Hence, we waited.

TenantSee Weekly: I Digress...

#employees

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TenantSee Weekly: What Comes Next For Office

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TenantSee Weekly: What Comes Next For Office

We’ve noticed an interesting shift in how companies are thinking about their offices.  For some time now, many companies have resolved to employ a hybrid approach to workplace, having employees work in office for a designated number of days each week.  In many cases, this solution was chosen more for how it seemingly struck a compromise between employers who wanted employees in the office and employees who sought freedom to choose.  To date, companies have been relatively lax in enforcing their workplace plan.  What’s changed?   Leadership is now becoming increasingly frustrated at spending on underutilized real estate.  Companies track space usage, and they don’t like what they’re seeing.  The occupancy reality is often way below what it would otherwise be if employees were following the hybrid work policy.  The company leasing 10,000 sf to accommodate an average of 10 workers each day is (painfully) aware of the wasted spend. 

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TenantSee Weekly: Knowing Your When

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TenantSee Weekly: Knowing Your When

We see a lot of confusion in the market around when to begin negotiations.  It’s not an insignificant consideration.  In fact, when you begin can make a huge difference in the outcome.  It’s understandable that tenants would not know when to start.  Brokers are not always keen to start at the right time, since compensation is derived by transacting and the closer the tenant is to lease expiration, the faster it will need to transact (and the fewer options it will have).  Good for the broker, bad for the tenant.  This creates a misalignment of interests that discourages thoughtful consultation on the front end – the more time a broker spends on a project, the lower the compensation. 

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TenantSee Weekly: Wayne Gretzky and the Young Generation

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TenantSee Weekly: Wayne Gretzky and the Young Generation

Wayne Gretzky attributed his success, in part, to his ability to “…skate to where the puck is going, not where it’s been”. This was among the skills that made him a great hockey player.  This same skill can help companies and individuals be more successful in business.  Yet it’s not what comes natural to us.  Have you seen young children play hockey, soccer, or similar sports?  A child’s first instinct is to go where the puck or the ball is, resulting in a highly ineffective throng of players.  In business, it can also be hard to go where others are not.  It requires instinct, thorough analysis and understanding of a market; and, most importantly, confidence to stay the course. 

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TenantSee Weekly: Reconnecting Work to Place

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TenantSee Weekly: Reconnecting Work to Place

Lately I’ve been contemplating Enrico Morreti’s 2012 book “The New Geography of Jobs”.  In it, Morreti makes the case that urban winners and losers are determined, in large part, based on the extent of geographic concentrations of high-tech employment.  San Francisco was perhaps the most prominent example of the thriving economic ecosystems that can emerge when tech employment is aggregated in one region.  I believe Morreti’s core thesis remains correct.  But his ecosystems are more fragile than we may have anticipated.  In fact, it seems they can unravel in much less time than they took to build. 

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TenantSee Weekly: Social Facilitation

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TenantSee Weekly: Social Facilitation

Here’s how ChatGPT defines social facilitation: “Social facilitation is a psychological phenomenon that refers to the influence of the presence of others on an individual's performance of a task. It describes how the mere presence of other people, whether they are spectators, colleagues, or competitors, can affect an individual's behavior and performance.”  In 1898, Indiana University’s Norman Triplett studied cyclists to determine differences in performance when racing other humans vs. the clock.  He found, “…bodily presence of another contestant participating simultaneously in the race serves to liberate latent energy not ordinarily available…”  I’ve experienced my own version of this in training for and running marathons.  Without fail, I was always able to run faster and farther when in the presence of others.  It turns out we have the capacity to do better, to do more, but reaching that next level is not easily accomplished alone.

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TenantSee Weekly: It's About Trust

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TenantSee Weekly: It's About Trust

Getting More for Less.

Companies aren’t families.  The employer/employee relationship is governed more by economics (math) than trust.  This is at the heart of the ongoing struggle between employers and employees over return to office and asynchronous work.  Let us explain.
 

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TenantSee Weekly: The Disconnected Worker

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TenantSee Weekly: The Disconnected Worker

I read an article recently about layoffs in the tech sector.  In it, one worker shared her story of being laid off by 3 companies in less than a year.  The first was a startup where she had worked for several years.  She questioned why she had been selected – it clearly felt personal.  The next 2 employments were each of short duration, the last being merely a month long.  In the end, she was left questioning whether she wanted to continue working in tech.  The tech sector, especially the startup segment of the tech sector, has never been a great place to seek job security because of its inherent volatility.  Yet it has long been a place in which employers seek to espouse winning and attractive cultures that are all about “the people”.  This got me thinking about job security in the post-pandemic workplace.  Has employment in the information economy become more unstable because there is less connection between employer and employee?  Is the relationship between employer and employee becoming more transactional? 

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TenantSee Weekly: The Case for Diversity

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TenantSee Weekly: The Case for Diversity

Shawn Achor’s excellent book, “Big Potential” references a study by Alison Reynolds and David Lewis detailed in the Harvard Business Review which measured the performance of teams based on “cognitive diversity”, or the spectrum of thinking styles among the team members.  It was found that more diverse teams consistently outperform their more homogenous counterparts.  Achor notes that, in many cases, despite the benefits of diversity, corporate leaders instead favor like-mindedness among team members. This tendency stems from the misguided belief that diversity breeds discord, hindering the team's overall function. Herein lies a fascinating truth: diversity indeed catalyzes friction, but it's this very friction that fuels better outcomes, sparking innovation and creativity.

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TenantSee Weekly: The Price of Innovation

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TenantSee Weekly: The Price of Innovation

In San Francisco, there’s not much standing between a near-term future in which office vacancies spike to 40% or higher.  By not much, we mean demand for office space.  What’s interesting is the cause.  Many focus on the battle between employer and employee in which employers want the employee back in the office and the employee wants to work remotely.  But it’s not that simple.  Post-pandemic, employees (especially younger generations) are more inclined to embrace the benefits of technology which enable work to be done from anywhere and make it less compelling, even illogical, to commute to the office.  No, this isn’t just about whether you like or don’t like being in an office.  It’s about the ways in which tech has advanced to change work and generational differences in the adoption of and comfort with such technologies.  Technology changes things.  It’s changing the construct of white-collar work, and in the midst of such change there will be winners and losers.  The fate of office markets, indeed of the office building as a product, hinges not on resolution of the remote work debate; but, rather, on the pace at which we adopt existing technologies and innovate new ones

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TenantSee Weekly: AirOffice

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TenantSee Weekly: AirOffice

Have we reached the point at which the office product might be consumed like the hotel, or the homes and rooms rented on platforms like Airbnb?  We’re certainly moving in that direction. Companies like Upflex (a Cushman & Wakefield partner), The Instant Group and others aggregate global facilities for easy access via technology apps. This transition resonates with the growing demand for flexible, location-independent work solutions, allowing employees to effortlessly book an office space wherever required.  I’m in Denver, I go to my app, enter my requirements (much like I would do on Airbnb) and, voila! my space is ready. The question is: are we ready to redefine our workspace consumption in line with the on-demand economy?

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TenantSee Weekly: Unusual Times

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TenantSee Weekly: Unusual Times

Want to know how strange things have gotten in the San Francisco office market?  An empty office building now costs less on a per square foot basis than it will cost to build new interior space in the same building.  Cushman & Wakefield’s Project Development Services team has recently released an Office Fit Out Cost Guide (report is here) which indicates the average cost to build new space from shell in San Francisco stands at $222/SF.  Now consider that a building like 350 California Street is rumored to be getting buyer interest at around $200/SF. 
 

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TenantSee Weekly: Unicorn Farming

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TenantSee Weekly: Unicorn Farming

Unicorn farming is risky business.  I should know.  For the past 30 years, I’ve lived and farmed here on the world’s biggest unicorn farm called San Francisco.  Growing unicorns requires massive investment.  Care must be given almost exclusively to fueling their mythical growth.  They’re highly susceptible to infection by ethics, laws, economic reality, truth and any number of other real-world impediments to growth. 

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TenantSee Weekly: Solve for Experience!

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TenantSee Weekly: Solve for Experience!

US office markets are not healthy.  The symptoms include reduced demand due to remote work, eroding rental economics due to mounting vacancy and broken capital stacks.  The pandemic was the catalyst, but technology is the true source of the suffering.  Technology is where many aspects of white-collar work are now done.   I asked Chat GPT to define the office and then I asked it to define the office in 1990.  Here’s how it responded: 

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TenantSee Weekly: Employee, Save Thyself

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TenantSee Weekly: Employee, Save Thyself

One of the more fascinating aspects of the conversation around where, when and how white-collar workers work is how it breaks through the guardrails of societal norms.  The catalyst for such thinking was the pandemic.  People are quick to point out that technologies have been around for decades which enable people to work from anywhere, and that many workers preferred remote work long before the pandemic - - - it’s also true some people preferred not to work even before the pandemic.  Yet absent the Black Swan Event that was the pandemic, we simply would not be having this conversation about work.  It takes a powerfully disruptive force to cause so much change. 

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TenantSee Weekly: The Restructure

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TenantSee Weekly: The Restructure

In markets like San Francisco where availability stands at ~30% and continues to rise, landlords of all stripes have either experienced or are poised to experience gaping holes in their occupancy.  At the same time, occupiers having remaining term and paying pre-pandemic rents (meaning rents that are way above current market) are watching the building bleed tenants and seeing the landlord market comparable space at a substantial discount to their in-place cost with massive concessions.  This is the perfect environment for restructure transactions.

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TenantSee Weekly: What Happens When...

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TenantSee Weekly: What Happens When...

This week we’re exploring what happens when companies define their own bespoke approach to the office vs. when they default to their pre-pandemic office construct, despite significant changes in how they work.  To date, many small to mid-size organizations have chosen not to formulate a definitive new approach, instead relying on the old office design and a loosely defined hybrid approach.  In a time when the mere discussion of corporate office policy has the potential to trigger highly negative reactions among employees, it takes courage and leadership to advocate a new plan that reflects a vision for the future.  Understandably, as we’ve crept out of full pandemic mode and begun to look to the future, many companies have been uneasy about taking a definitive position.

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TenantSee Weekly: It's Tricky

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TenantSee Weekly: It's Tricky

Despite being awash in available space, the San Francisco office market can be tricky to navigate.  By now, everyone knows the market is distressed.   When companies explore leasing options, they do so with the expectation they will be able to trade up for better quality space at substantially reduced pricing; or, they expect to significantly decrease the cost of their existing space with a lease extension.  These are reasonable expectations, yet they can be elusive for several reasons.

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TenantSee Weekly: IRL vs. URL

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TenantSee Weekly: IRL vs. URL

Lately, something has been bothering me (IRL).  I’m losing sleep.  I don’t understand how life can be IRL and URL.  To me, life is only IRL – there is no such thing as URL.  Technology is merely a construct that we created, presumably to make IRL better.  What began slowly, now rapidly causes big shifts in how we experience life, IRL.  Not all change is good.  The modern office is among the high value social constructs which technology seeks to upend.  The office IRL is fast becoming the office URL.  Is this a good thing? 

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TenantSee Weekly: Maybe The Office Isn't So Bad After All

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TenantSee Weekly: Maybe The Office Isn't So Bad After All

There’s been a lot written over the past 3 years about the negative aspects of office life, about how it harms our health, distracts us from what really matters and makes us less productive.  The freedom to choose where and when we work, it’s argued, is transformative, enabling us all to create our own perfectly tuned work-life balance. It sounds nice, the idea that no one (at least no white collar worker) will remain oppressed by the constraints of working at an office, or working on a fixed schedule.  Turbo-charged gig workers, calling our own shots.  What could go wrong?  Maybe a lot.