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...

#futureofworkspace

, ,

TenantSee Weekly: Planning for the Future, not the Moment

, ,
TenantSee Weekly: Planning for the Future, not the Moment

Urban planning can go horribly wrong.  It often fails the test of time.  1950s America brought a surge in suburban development and car transportation.  It also led to one of the single worst American urban design decisions (my opinion), the development of the Embarcadero Freeway, originally intended to connect the San Francisco Bay Bridge to the Golden Gate Bridge by extending along the northeastern edge of the city as it hugs the bay -- effectively blocking the views along one of the most scenic corridors in any US city. 

, ,

TenantSee Weekly: What Could Go Right?

, ,
TenantSee Weekly: What Could Go Right?

Mass psychology is literally contagious (that’s how it becomes “mass”).  This is especially true in times of change, when a significant event has precipitated such change (e.g., the pandemic).  These events can be positive or negative.  In our current state, the catalyst was negative, and, in many ways, has resulted in a decidedly negative outlook.  When things turn negative, there will always be market casualties (just as a rising tide lifts all boats in the positive context).  For example, the impact to investors in the domestic office sector has been mostly negative.  As change unfolds, it can have knock-on impacts that weren’t necessarily anticipated.  For example, the demise of urban downtowns due to shifts in daily worker population.  Collective sentiment tends to aggregate around a view and stay there until some brave souls dare to take the contrarian view.  As these contrarians see success, it spurs others to jump on board and the collective sentiment begins to shift, once again, in the other direction.

, ,

TenantSee Weekly: The Disconnected Worker

, ,
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? 

, ,

TenantSee Weekly: Cap Stack Woes

, ,
TenantSee Weekly: Cap Stack Woes

Recently, we have written about the importance of understanding the landlord’s “cap stack” (capital stack, meaning equity and debt).  Understanding the cap stack that guides a landlord's decisions is more than just a business detail — it's an integral part of the current real estate landscape. Today, there is a massive chasm between what many owners can afford to do in the current market and what they need to make a deal accretive or even break-even, given the capital stack realities of the underlying market.  In short, many owners simply cannot afford to transact at market. Why? Two primary reasons:

, ,

TenantSee Weekly: Pandora's Office: Part II - The Psychology of Workspace

, ,
TenantSee Weekly: Pandora's Office: Part II - The Psychology of Workspace

One of the positive outcomes emerging from a more holistic contemplation of work is a better understanding of how the behavioral and design elements of the workplace impact well-being, the psychology of the workplace.  Historically, the physical office and the culture that accompanied it, was largely a one-size fits all, top-down dictate that employees were not encouraged to question.  While this one-dimensional approach may have been easier to conceive, it had the detrimental effect of failing to adequately support some percentage (maybe a large percentage) of the employees.  But it’s a new day, a time when we have increased awareness of neurodiversity and sensory processing, an opportunity to provide optionality in support of the broad spectrum of employee (human) differences.  It’s a moment when we can more fully contemplate the psychology of the workplace.  Indeed, the more thoughtful we are in creating workplaces that cater to diverse employee needs, the better these environments will serve the organization.

, ,

TenantSee Weekly: Flexing

, ,
TenantSee Weekly: Flexing

Over the past couple of decades the long term office lease has become increasingly challenging for occupiers. Demand for space has always been cyclical, rising and falling with the economy, and technology has continued to make it easier for workers to be productive from anywhere. While shared space, or coworking solutions have been around for decades, the scale of the industry expanded rapidly during the period from 2010 to 2020, especially through the Softbank-funded expansion of WeWork. Coworking is a form of flex leasing that is characterized mostly by spaces that are broken into component parts, offering members shared access to services and amenities. The space between coworking and long term direct leasing of separately demised office space is a relatively new place in which a tenant can secure a flexible lease (shorter term of 6 months+) on a fully demised, prebuilt, furnished space which does not include managed services. This is the latest and perhaps most consequential form of flex leasing.

, ,

TenantSee Weekly: It's Time to Take Action

, ,
TenantSee Weekly: It's Time to Take Action

In 2020 most companies forced their workers to a fully remote posture. In 2021 companies started encouraging their employees back to the office, most with limited success. In 2022 this strained dialogue about return to office has continued. While some have sought to fully address the new realities of the workplace by developing and committing to an approach that both clearly addresses expectations for employees and supports these expectations with modifications to the physical workplace, many have chosen to communicate “soft” messaging about return to office while not making any changes to the physical office.