News & Research Archive

Watch the Secondary Office Markets to See Real Recovery

Apr 12, 2011

 

As America digs itself out of a severe recession, it is important to note that in general the office market across the country has seen a fairly decent rebound. However, economists have really not made much note of this fact. The reason for this is that during the last boom, office construction took second place to major growth in retail to support the ever-expanding residential boom. Most high vacancies in major cities have occurred due to job loss rather than overbuilding.

During the last major recession in the early nineties, people were faced with both the overbuilding of office space as well as job loss. At the height of the office bust, San Francisco built so much new office space that most predictors were saying that it would take twenty years to completely absorb the amount of new office space that was built. Today we are seeing vacancy rates drop in most major cities. As traditional businesses are now stabilizing we are seeing anemic yet positive vacancy rate drops in most cities.

To really predict whether the country is truly in recovery we need to see growth in our secondary office markets that surround our major cities. For instance, in San Francisco, Oakland is a secondary office market in the Bay Area. Oakland typically enters a recovery late and is the first market to deteriorate in a down market. Oakland has many negative issues to deal with yet as a city it offers some excellent office opportunities in some very nice locations. The biggest reason why Oakland's office market suffers is that it is in a very difficult location to bring workers to. If you have employees in Marin for instance or in San Mateo the transportation resources and driving make for a long commute. Yet when office prices start jumping up in San Francisco, Oakland begins to see firms that find the rental price differences worth considering the move.

San Francisco is seeing a mini tech boom as a result of growth in social networking, gaming and mobile application firms. Unlike firms that began in the dot-com boom, these firms don't have nearly as much financing and are offered much shorter leashes to show profit or large viewer audiences from their investors. These firms are looking for shorter-term leases with a creative feel. They also have to be concerned about the increasing cost of rent for their employees in cities such as San Francisco. Oakland will become an alternative for firms that seek the non-conventional look while also enjoying a relatively low residential cost basis for their employees. Oakland has not seen any significant growth yet but when it does we'll know that the San Francisco Bay Area economy is booming again.

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Written by: Hans Hansson

E-mail: hans@starboardnet.com


Hans Hansson is President of Starboard TCN Worldwide Real Estate Services as well as a member of the Board of Directors for TCN Worldwide Real Estate. Hans has been an active broker for over 26 years in the San Francisco Bay Area and specializes in office leasing and investments. If you have any questions or comments please email hans@starboardnet.com or call him at (415) 765-6897. You may also check out his website, http://www.commercialspacefinder.com/.

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