The San Francisco commercial real estate industry is on fire. That doesn’t seem to be something that will change in the near future, according to the RealShare San Francisco conference. Our man on the ground, Jeff Coyne, a business development director with GRS Group, who is also an expert on West Coast CRE, breaks down what is happening in the Bay Area.
It seems like the Bay Area continues to explode in terms of its commercial real estate performance. Any sign of that slowing down that you noticed at the conference, or do people think the momentum can continue?
It’s really full-steam ahead in the San Francisco and greater Bay Area right now. People think that times are good and will continue to stay that way in the commercial real estate arena.
There are some concerns. There is a lack of new product coming on the market in San Francisco due to political issues and a lack of land to build on, not much affordable housing and high costs in general. Plus, the city itself obviously can’t expand due to its land-water barriers.
However there are more pluses than minuses so far, and no one is predicting any kind of major downturn.
The office market there is especially strong. Do you think Millennials and creative office are driving a lot of this, or is that more of a temporary trend?
Right now, San Francisco is the top office market in the nation in terms of rental rates. There are several start-up firms popping up every day, and they’re growing. They need more space, and they want to stay in San Francisco. Salesforce and Twitter can afford to stay in the city, but other companies without that much capital are going to have trouble find that kind of space.
So now, more and more companies are going across the bridge to locales such as Oakland and Berkeley.
Millennials are a driver for all of this, but San Francisco is also a world-class city. And it’s arguably the main tech hub on the planet. Tech professionals are going there in droves. They get paid very well and want to live in San Francisco, driving up the housing costs. It’s getting harder for the people who service these employees to find a place to live. So, there is a potential downside in that regard.
What is the financing picture right now in the region? I assume there is major competition for deals?
Competitive is not even close. Lenders, investors and foreign capital are all crazy about the city. They can’t find enough assets to compete over. Additionally, building is very difficult in this limited space. So the assets that go to market are fought over very competitively. Any solid asset that goes to market gets fought over.
How is multifamily performing? I assume there is not enough supply on the market?
The lack of supply is making the market great for landlords. There is very little supply and a major shortage of affordable housing right now. The only new multifamily assets getting built are luxury and class A. Additionally, the older the assets that are purchased are renovated and rented at market rates that are among the highest in the country. There is no forecast that they will drop anytime soon, either.
How is GRS Group servicing clients in that part of the state and what kinds of deals are you mostly seeing?
We’re doing a lot. We have a great mixture of different types of firms, such as investors/owners, lenders, brokers and CMBS firms that we work for. GRS also services nearly every commercial real estate sector, including multifamily, office, industrial and retail throughout the Bay Area. Among our many offerings to clients are property condition assessments (PCAs), Phase 1 environmental assessments, seismic reports and zoning reports, as well as many other services. We do major title and appraisal work for clients in the region.