Op-Ed

TenantSee Weekly: The Case for Diversity

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.

TenantSee Weekly: The Price of Innovation

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

TenantSee Weekly: AirOffice

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?

TenantSee Weekly: Unusual Times

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. 
 

TenantSee Weekly: Unicorn Farming

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. 

TenantSee Weekly: Solve for Experience!

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: 

TenantSee Weekly: Employee, Save Thyself

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. 

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: Why Are You Doing That?

TenantSee Weekly: Why Are You Doing That?

We’re excited to promote our upcoming event at Café TenantSee, “Why Are You Doing That?”.  For the uninitiated, Café TenantSee is an intimate quarterly in-person event designed to provide highly relevant, useful insights and perspectives for office occupiers.  The café opens at 8:45 am on Tuesday, April 25, 2023.  Come and order a specialty coffee or tea drink from our expert baristas.  Light breakfast is also provided. Our program runs from 9:30 to 10:30.  Unfortunately, our café is small.  We can only accommodate 50 attendees, so space is limited.

TenantSee Weekly: A Few Thoughts on the State of San Francisco Office Market

TenantSee Weekly: A Few Thoughts on the State of San Francisco Office Market

We normally reserve discussion of market fundamentals for our Quarterly market updated, “The Tenant’s Perspective” (which we release just after the close of the quarter).  However, as we near the close of Q1 2023, there are several narratives playing out which we deem significant in shaping the near and mid-term market dynamic.  We think it’s important to share these now.

TenantSee Weekly: What Happens When...

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.

TenantSee Weekly: It's Tricky

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.

TenantSee Weekly: IRL vs. URL

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? 

TenantSee Weekly: Unpleasant to Existential

TenantSee Weekly: Unpleasant to Existential

When the pandemic hit in 2020, emptying San Francisco office buildings, landlords were mostly unfazed given high levels of occupancy and income.  As the pandemic gained momentum, some owners began to quietly wonder if this could be bad enough to render their buildings empty for a prolonged period.  Yet it wasn’t until late 2021/early 2022 that investors began to fully grasp that appetite for their product had changed in significant ways.

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

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. 

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 Weekl: Change is Hard

TenantSee Weekl:  Change is Hard

While change is generally a constant state, big changes in one area can have the effect of spurring many additional changes in related areas.  In most cases we’re not very good at forecasting all the add-on changes that may follow the initial change.  We’re like low skill chess players, unable to see the full spectrum of opportunity and vulnerability created by our moves.  And when big change requires us to take action, we often seek the comfort of doing what everyone else does as opposed to formulating our own approach.  In the business world, this is a byproduct of risk aversion, or what can be called CYA at scale.  Our corporate structures don’t typically provide incentive for creative, individualized responses to business challenges. 

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: Educating vs. Selling

TenantSee Weekly: Educating vs. Selling

Selling is important.  It’s what makes the world go round.  But sometimes selling crosses the line and gets a little too close to misrepresenting or worse, lying.  After all, there’s always been a healthy dose of deception built into selling.  In sports, teams and athletes sell their opponents on the idea they’re going to zig when they in fact zag.  Governments seek to sell a vision in order to successfully lead their people.  Sometimes the vision is wrong, out of synch with what the people want.  Look no further than China’s Zero Covid policy.  Companies must sell their products and services to succeed.  Startup founders must sell investors on the merits of investing in their companies.  Buyers don’t want to buy an “OK” product or service.  No one ever said, “…hey, let’s go with those guys, their product seems flawed but they’re really honest about it”.  Much of what is sold is imperfect.  Sellers have incentive to craft approaches that distract from imperfection while accentuating strengths.  Even the salesman with a crappy product has to eat.  It’s no wonder we’ve become skeptical.  It’s essential to our survival.  Storytelling is a form of selling.  It often seems the best storytellers are selling the worst products.  Sam Bankman-Fried of FTX and Adam Neuman of WeWork come to mind.  My family loves the classic Christmas movie “Elf” starring Will Ferrell.  There’s this great scene when his character, “Buddy”, first arrives in New York.  He passes by a coffee shop with a sign in the window that reads, “World’s Best Cup of Coffee”.  He sees the sign and runs inside full of excitement to congratulate everyone, much to their bewilderment.