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.
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.
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.
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.
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.
This San Francisco office market report is providedcompliments of TenantSee. TenantSee is a tenant realestate product combining a team of subject-matterexperts with powerful technology to make tenantreal estate smarter, faster and better. Our report isintended to provide you, the tenant, with meaningfulinsights, not raw data.~
Office space is a physical environment in which employees gather to fulfill the goals of the corporation, the most obvious being profit. The way employers use office space has continuously evolved over the years most notably as new technologies emerge. Over the past 2 decades many technologies have been developed that would otherwise enable a significant shift in the way we work, especially in terms of where we work. However, notwithstanding the presence of these technologies, employers have mostly been reluctant to fully embrace their use due to uncertainty around how such changes would affect productivity and culture. The covid-19 pandemic forced everyone to embrace tech, shifting most workers from offices to working from home. Employers have been surprised to find their worst fears unfounded.
Armed with the knowledge the enterprise can survive, occupiers find themselves having a new conversation about workplace solutions. This is among the more valuable corporate undertakings of the past century. Why? Because office space is not really about buildings, location or even cost…it’s about supporting and promoting employee engagement. Engagement can be defined in a variety of ways but the simplest way to think about it is in terms of how well the employee is thriving. A thriving employee understands, is connected to and contributes to the corporate culture. She is healthy and happy. She is loyal and disinclined to seek other opportunities. She is productive. There are many drivers that contribute to employee engagement but the workplace is among the most impactful.
Over the past decade as demand surged and supply became increasingly limited, office rents rose uniformly across the bay area. But now that demand is waning and supply rising, don’t expect landlords to make downward price adjustments in unison. Landlord behavior varies by type of landlord (private capital, REIT, institutional fund), debt and equity, stability of tenancy and cost basis. While product type may be comparable (e.g., class A office buildings in the San Francisco financial district), individual owner motivations reflect the highly differentiated interplay of these variables.~
Recessionary pressures often result in reduced hiring and/or lay offs, leading to excess office space. The COVID - 19 Pandemic has forced many San Francisco tenants to look to the sublease market to mitigate the expense of excess office space. Over the past decade it has been relatively easy for occupiers to secure subtenants, often at a profit. Yet in times of macro-economic uncertainty, many tenants are surprised to learn their space is worth less (sometimes considerably less) than their cost basis. This is one of those times.
Among the many reasons we created TenantSee is our belief that tenant real estate services should be full-scope, easy for occupiers to access and delivered with total transparency. Most real estate service providers simply don’t have the scale to address the entire spectrum of occupier need. The handful that have such scale require tenant clients to navigate a maze of siloed service lines that are poorly integrated with conflicting agendas. TenantSee, powered by Cushman & Wakefield, offers occupiers industry-leading resources accessible through an award-winning technology platform from which services and outcomes are delivered and measured with transparency. ~
This San Francisco office market report is providedcompliments of TenantSee. TenantSee is a tenant realestate product combining a team of subject-matterexperts with powerful technology to make tenantreal estate smarter, faster and better. Our report isintended to provide you, the tenant, with meaningfulinsights, not raw data.~
This San Francisco office market report is provided
compliments of TenantSee. TenantSee is a tenant real
estate product combining a team of subject-matter
experts with powerful technology to make tenant
real estate smarter, faster and better. Our report is
intended to provide you, the tenant, with meaningful
insights, not raw data.
Technology has had a growing impact on how corporations think about labor, facilities and cost. In particular, companies have found that they don’t always need to have a physical presence to be present. And where they are physically present, they seek deeper understanding of how to design their facility to maximize employee engagement. In short, the scale and design of the modern workplace is rapidly changing in response to technology.
In my 30-year career in commercial real estate, I’ve seen all kinds of marketing strategies. In my experience, tenants are often unaware of the key qualities in an advisor that reliably predict success, making them susceptible to selecting the wrong advisor. To achieve optimal office leasing outcomes, occupiers need to engage a service provider who possesses the following critical ingredients:
1. Market intelligence.
2. Planning.
3. A full-scope team.
4. Thought leadership/strategy.
5. Experience.
This San Francisco office market report is provided
compliments of TenantSee. TenantSee is a tenant real
estate product combining a team of subject-matter
experts with powerful technology to make tenant
real estate smarter, faster and better. Our report is
intended to provide you, the tenant, with meaningful
insights, not raw data.
You signed a 10-year lease 7 years ago. Since then, the market value of your space has more than doubled. At this pace, you’re looking at a huge price increase in 3 years. What should you do? Today in the San Francisco Bay Area marketplace, this is the single most common discussion we have with tenants. Since our approach to this question is always the same, we thought it made sense to describe it here today. The question “What should we do?”, is really comprised of 3 questions.
This San Francisco office market report is provided
compliments of TenantSee. TenantSee is a tenant real
estate product combining a team of subject-matter
experts with powerful technology to make tenant
real estate smarter, faster and better. Our report is
intended to provide you, the tenant, with meaningful
insights, not raw data.
For many companies, the process of finding new office space and executing a lease can be daunting, even with the help and insights of a broker familiar with the market. Traditionally, the brokerage and transaction process has remained largely the same over the years, with tenants relying on the knowledge of others in the industry — brokers, landlords, contractors — to help them make the most informed decision when selecting a new property. For Greg Fogg, one of the founders of TenantSee alongside Samantha Low, this was a fundamental problem for tenants seeking space. Those at TenantSee realized many companies started their search for space with little direction and few established parameters despite the myriad of service lines offered by brokerage firms, making the entire process more time consuming and costly. From these observations TenantSee, a tenant real estate product offering, was born in an effort to create a new brokerage-based service model, allowing tenants to make more informed decisions before they sign a lease.
The playbook for speculative office development hasn't changed in years. It centers on quality location, architecture and project amenities; all viewed through the lens of cost to build and projected return on investment. Attention is paid to design details relating to the floor plate, core areas, building systems, project amenities; and, generally, all facets of the core and shell. But the analysis stops at the tenant's front door. At that point, landlords tend to shift their focus to market-based estimates of the total tenant improvement contribution necessary to attract tenants. Today market factors, notably, co-working and prop tech, have emerged that create an expectation among occupiers that their occupancy can ultimately be understood in terms of data. This trend will continue.
PropTech continues to change how commercial real estate services are handled, and new advancements are a key focus of large brokerage firms that are seeking an edge in the space.
One of those approaches is TenantSee, powered by Cushman & Wakefield, which provides data and expert insight to help guide tenants in leasing decisions.
Greg Fogg and former electrical engineer and project manager Samantha Low co-founded TenantSee. The company won a 2018 #RETAS award for Tech-Enhanced Brokerage from CREtech.
Fogg, an executive managing director with Cushman & Wakefield who has spent 30 years in the industry, will be among the panelists at Bisnow's San Francisco CRE Tech Summit on May 9.
Bisnow caught up with Fogg to talk a bit about TenantSee and the future of PropTech.
Traditional “tenant representation” is heavily influenced by procurement strategies – strategies that focus on lowering cost. The simple idea? Create competition among a subset of landlords for the tenancy. The advisor’s value is in how low it can drive down the cost of space. But office space is more than an expense. It’s an investment that impacts productivity (revenue). Comparatively small percentage increases in productivity are worth much more than large percentage decreases in cost.
Technology investment in the commercial real estate sector is higher than ever. One of the areas garnering strong investor interest is web search. In the context of commercial office space, the consumer value proposition of web search centers on making the otherwise complex process of finding your next workspace easy. And in an age when we increasingly transact for goods and services using our mobile device, the promise of an easier way to secure office space is inherently compelling.
This San Francisco office market report is provided
compliments of TenantSee. TenantSee is a tenant real
estate product combining a team of subject-matter
experts with powerful technology to make tenant
real estate smarter, faster and better. Our report is
intended to provide you, the tenant, with meaningful
insights, not raw data.
We are nearing the longest period of economic expansion in U.S. history. At this stage of the cycle, some U.S. office markets are extremely tight, resulting in reduced occupier leverage and more expensive leases — none more so than the San Francisco Bay Area. As of the fourth quarter of 2018, according to Cushman & Wakefield (our parent company), the San Francisco office market is 6.4% vacant, the lowest vacancy of any major U.S. market. The average asking rent is $75.57, the highest in the country, and office rental rates increased 41% from 2013 to 2018. Similarly, JLL's Q4 Office Insight reportestimates total vacancy at 7.1% and average asking rent at $80.97, and Newmark Night Frank notes in its San Francisco Office Market research for Q4 2018 that overall vacancy is 8% with asking rental rates averaging $82.51. The bottom line: Space options are limited, and rental economics are at all-time highs.
Every company understands that real estate solutions impact people and financials. This is obvious. Yet given this simple truth, it's remarkable how many companies fail to prioritize the impacts before implementing a leasing strategy. In fact, the strategy itself should be informed by these priorities. The world of tenant real estate services is fundamentally organized into the categories of space procurement, space design and space construction. These services are mostly geared toward execution, often lacking meaningful pre-execution consultation.
