#workplace

TenantSee Weekly: The Exclusive Right to Represent

TenantSee Weekly:  The Exclusive Right to Represent

At TenantSee, we only advise clients under a formal working agreement that clearly outlines our role as the exclusive representative, the scope of services, and how we are compensated. It’s a short, straightforward document—but a vital one. It establishes our fiduciary duty and marks the official beginning of our advisory relationship.

TenantSee Weekly: What Will We Do?

TenantSee Weekly:  What Will We Do?

What if we didn’t have to work? How would we spend our time?  For most of us, this is not a question that has warranted contemplation given financial realities.  But as a society, now would seem to be the right time to begin planning for the possibility of a future in which human labor is automated.

TenantSee Weekly: How a Building Sale Affects Lease Negotiations

TenantSee Weekly:  How a Building Sale Affects Lease Negotiations

The pace of investment sale activity in San Francisco is accelerating.  This is the “Great Reset” about which we’ve written.  It’s driven by capital partners (equity/lenders) deciding there is no viable pathway to own their way to an exit and choosing to sell (usually at a steep discount to what they paid and/or the value of the debt).  Ultimately, these capital stack resets are healthy as they activate the asset, enabling new capital partners to transact at market.

TenantSee Weekly: Leverage

TenantSee Weekly:  Leverage

The concept is simple.  It’s the thing you use to make the deal better.  But in real estate negotiations, the extent of a tenant’s leverage and how best to exercise it, is less than obvious.

TenantSee Weekly: What Do You See?

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: A Good Desk

TenantSee Weekly:  A Good Desk

Did you know the modern desk dates to 2000 BC?  It was used by ancient Egyptian scribes.  Over the centuries, the desk has evolved, often to keep pace with new technologies.  For example, the steel desks of the early 20th century were designed, in part, to provide better support for heavy typewriters.    

TenantSee Weekly: In a Vaccum

TenantSee Weekly: In a Vaccum

Office leases are complicated undertakings comprised of many variables.  The markets offer a variety of solutions, ranging from coworking to subleases to long and short-term direct leases.  It’s always important for corporate leaders to understand the primary objectives they seek to achieve in leasing office space.  But even when these objectives are well defined, it can be tricky to assess which solution is best.

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: 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: I Was Told We'd Be Discussing the Office...

TenantSee Weekly: I Was Told We'd Be Discussing the Office...

AI has summarized capitalism for me as follows:

“…an economic system where private individuals and corporations own and control the means of production, such as property, businesses, and industries. In capitalism, the core principles are profit motive, private property, and market competition. The government's role is limited to taxation and standard regulatory laws, and individuals are given the freedom to operate their businesses and manage their income as they choose.” 

TenantSee Weekly: Friday

TenantSee Weekly:  Friday

Walking the near empty streets of downtown San Francisco on this beautiful August Friday, inspired us to ask our friend ChatGPT to craft a poem about the economic impact of workless Fridays.  Enjoy!

TenantSee Weekly: What Comes Next For Office

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. 

TenantSee Weekly: Work

TenantSee Weekly:  Work

Over the past several years the concept of work has undergone more change than at any point in recent history.  While there’s many narratives, one common discussion centers on changing where and when we work to make work less harmful to our health.  This is exemplified by remote work. 
 
Work can certainly be harmful.  Yet few among us can avoid harm.  Indeed, harm often comes to us in ways we cannot and do not anticipate.  Sometimes what seems good turns out to be bad.  The very world in which we live is full of harmful realities.  I’m not convinced the absence of work brings less harm.  Nor am I convinced the changes we’re seeing now around how and where we work are as good for us as we hope they will be.  I think we’re generally failing to account for a variety of negative consequences that are slowly becoming more apparent.

TenantSee Weekly: Reinvention

TenantSee Weekly:  Reinvention

Physical places, buildings, towns, cities, and even entire countries are always changing.  Sometimes the change is progressive and less noticeable, sometimes it's more extreme and jarring.  Near where I grew up is the town of White River Junction, Vermont.  When I was a child, the town was mired in hard times.  But it wasn’t always this way.

TenantSee Weekly: Knowing Your When

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 Weeky: A Big Decline in Rents, Four Years in the Making

TenantSee Weeky:  A Big Decline in Rents, Four Years in the Making

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 Weekly: Thinking About Physical Spaces

TenantSee Weekly:  Thinking About Physical Spaces

I suspect most of us are caught off guard by change at scale.  When thinking about the pace of change over the last 15 years, it’s clear we’ve entered a new era, one in which technology is enabling us to rethink EVERYTHING.  Change in how we design and occupy physical space is inevitable.  The skyscraper boom began in the late 1800s and the product playbook in urban core office markets has remained mostly unchanged for decades.  Similarly, the ways in which the office product has been developed and owned, the investment thesis, has been largely unchanged in how it relies on capturing the best occupants in leases that reflect the highest possible pricing and the longest possible term to generate stable net operating income and bankable future value.

TenantSee Weekly: Bottom?

TenantSee Weekly:  Bottom?

Have we hit bottom in the pricing of San Francisco office assets?  Maybe. 
 
The historical measures by which office buildings were valued, a function of capitalized net operating income, doesn’t apply to assets having large vacancy and limited
weighted average lease term (“WALT”).  These assets are trading at a simple cost/sf metric.  Investors take a long-term view of the investment, betting the value for San Francisco office will, ultimately, recover.  They may or may not use debt to finance the acquisition – where there is limited occupancy, they may not be able to secure debt.

TenantSee Weekly: Modern Workplace Planning: Solving for Experience Part VII: Design and Construction

TenantSee Weekly: Modern Workplace Planning:  Solving for Experience  Part VII: Design and Construction

One common mistake tenants and their advisors make when negotiating the office lease is failure to properly account for design and construction implications.  These are important considerations.  Space design plays a vital role in determining the efficacy of the space, how it translates in terms of value to the employees.  Construction is expensive, representing a material component of the tenant’s total occupancy cost.  Gaining understanding about design and construction at the right time in the transaction process provides useful data in the context of effective negotiations.