Op-Ed, Commercial Real Estate, Bay Area
greg fogg
TenantSee Weekly: What Do You See?

When you look at an office building, what do you see?  Maybe you see the architecture.  Maybe it’s the neighborhood, the restaurants, and amenities.  Perhaps, you see the views from within the building.  This is what most people see.  They’re all important.  But it’s what you don’t see that matters most.

TenantSee Weekly: What Do You See?
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?

#hybrid

, ,

TenantSee Weekly: Taxis and the Offices

, ,
TenantSee Weekly: Taxis and the Offices

Technology replaces that which it improves. 
 
Not long ago, the streets of San Francisco were full of taxis.  Simply by raising your arm, you could hail a taxi in minutes.  Then, Uber and Lyft created their apps.  Their intention was always to disrupt an industry that hadn’t changed in decades.  Initially, many taxi drivers transitioned to become Uber and Lyft drivers, likely anticipating the technology would shift, not replace their work.  But that’s not how this is turning out.  Autonomous vehicles will replace human-driven, human transport solutions in major cities where taxi drivers once thrived.

, ,

TenantSee Weekly: Disbributed (but only a little)

, ,
TenantSee Weekly: Disbributed (but only a little)

Surveys indicate most workers favor a distributed workplace in which they can work from anywhere, any time.  When it comes to work, individuals focus (mostly) on their own specific benefits, as opposed to thinking about how the ways in which their work gets done affects the broader organization.  This makes sense, as one of the key benefits of our economic system is how it permits the individual to get ahead, to maximize its value.  Employees realize value in a variety of ways, including compensation and other variables.  Flexibility in where and when people work is high on the list of non-compensation related variables.

, ,

TenantSee Weekly: The Restructure

, ,
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.

, ,

TenantSee Weekly: Swimming Naked: The Risk of Non-Performing Vacancy

, ,
TenantSee Weekly: Swimming Naked: The Risk of Non-Performing Vacancy

Over the past decade the San Francisco office market was among the most desirable global markets for institutional office investment.  Valuations increased by 100%+, and many assets traded…some multiple times.  Even those that didn’t trade were often refinanced at substantially higher values, enabling the equity partners to take out significant amounts of capital.  Today values are dropping as demand for office space in San Francisco is at historical lows, causing rental economics to decline rapidly.  This presents unique challenges that are (typically) not entirely obvious to occupiers; namely, a full understanding of the debt and equity stack and the landlord’s ability to perform. 

, ,

TenantSee Weekly: Why Flex is Hard (but Inevitable)

, ,
TenantSee Weekly: Why Flex is Hard (but Inevitable)

The “flex” in flexible office solutions is about the occupier’s ability to limit commitment. A one-year lease is more flexible than a two-year lease, so on and so forth. With occupier uncertainty about why, where and when they should provide office solutions for their employees at an all-time high, you’d think landlords would be eager to offer high flex options in order to meet demand where it’s at. However, it’s difficult for landlords to provide the flex product, despite its potential to command premium rents and increase demand. Why? Because it’s expensive to build office space, and it’s difficult to design space that has broad residual appeal to a large swath of occupiers. 

, ,

TenantSee Weekly: Suits, Ties, and the Office

, ,
TenantSee Weekly: Suits, Ties, and the Office

I have a lot of suits and ties. The ties are folded neatly in a drawer that I rarely open. Some are solid, some have stripes, some have little animal prints. I also have a lot of suits. These are mostly tucked into the back of my closet. Oh, I have some expensive leather shoes in a variety of styles, as well. These, too, are stored in various states of disuse. I no longer wear this stuff (but for rare exceptions). The ties were the first to go. I stopped wearing them sometime around 2015/2016. At that time, I still wore suits and nice shoes, just no tie. Shortly thereafter, the suits were replaced by sport coats and slacks. These were still tailored, not casual. But then, at some point, everything became more casual. The nice leather shoes were traded in for the new style sneakers that everyone now wears, or Allbirds or some other more casual footwear. These days I may not even wear a sport coat. Vests are a nice option. They’re flexible and nearly always sure to fit in with the prevailing attire of the day. Plus they make me look sporty, or maybe techy. A little more like I get it (even though I probably don’t).

, ,

TenantSee Weekly: Intent, Policy, and Behavior

, ,
TenantSee Weekly: Intent, Policy, and Behavior

It’s not uncommon to see discrepancies between corporate policy, the intent of the policy and the actual behavior of the leaders who are charged with implementing the policy. Jan Johnson and Jeff Leitner have studied this phenomenon in their work on the power of unwritten rules in shaping human behavior. I was thinking about their work as I recently participated in a panel discussion titled, “The New Geography of Work”, hosted by the Northern California Chapter of CoreNet. The discussion was fascinating, mostly thanks to the contributions of our moderator, Robert Teed of Integri Group, and the smart panel members, Kate Lister of Global Workplace, Chandler Bonnie of Dropbox and Irene Thomas Johnson of JLL.