2009 | REAL ESTATE FORECAST
SAN FRANCISCO BAY AREA
Office
Industrial
Retail
Investment
SAN FRANCISCO BAY AREA
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Please contact your local Grubb & Ellis office for further information about this regional forecast or see the list of contributors. Reproduction in whole or part is permitted only with the written consent of Grubb & Ellis Company. Some of the data in this report has been gathered from third party sources and has not been independently verified by Grubb & Ellis. Grubb & Ellis makes no warranties or representations as to the completeness or accuracy thereof. Note: Year-end 2008 numbers include estimates for the fourth quarter that were derived in November. Final published numbers may vary slightly. Totals may not add precisely due to rounding. © 2008 Grubb & Ellis
To Grubb & Ellis Clients and Colleagues:
As we end 2008, it is becoming extremely clear that we are in the midst of what could be a lengthy and prolonged recession. Actually, our outlook for the commercial real estate industry changed dramatically during the third quarter of 2008 as the credit market unrest that first gripped the national economy in August 2007 escalated into a full-blown global financial crisis. Although it is difficult to predict just how long and severe the current downturn will be, we believe that we have not seen the end of weakening consumer and business confidence, slowing manufacturing activity, and rising unemployment that is currently plaguing our economy. These are all factors that impact every aspect of the commercial real estate industry. Within the commercial real estate market, the investment sector was the first to feel the effects of the credit crisis, and as a result property sales were down by two-thirds during the first three quarters of 2008 as compared with the same period in 2007. As I write this, access to capital remains extremely limited, and the leasing market is starting to more severely feel the effects of the economic uncertainty. Needless to say, this is probably the most challenging market we have experienced since the early 1990s. I can say that it is certainly the most challenging time I’ve seen in my 30 years in the real estate industry. At this point we believe it most likely will be late 2010 before we begin to see a meaningful recovery throughout the commercial real estate industry. However, there are some bright spots. Low oil prices and interest rates will allow some commercial real estate sectors to recover quicker than others. And if you are a tenant with a requirement or an investor with cash, 2009 will offer considerable opportunity. At Grubb & Ellis Company, we believe that within a challenging market there are opportunities. Our goal, as always, is to help our clients take advantage of them. We look forward to discussing the specifics of our 2009 Forecast with you, and to helping you meet your real estate goals now and into the future. Sincerely,
Gary H. Hunt Interim Chief Executive Officer Grubb & Ellis Company Table of Contents
Grubb & Ellis goes above and beyond in-depth local market research and analysis. As our clients’
Office
2
needs have evolved from bricks and mortar requirements to encompass complex global real estate
Industrial
4
issues, our industry subject matter experts contribute focused, specialized expertise to the process.
Retail
6
Investment
7
This added layer of analysis gives clients a more complete picture of the environment in which they
Company Profile
9
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Grubb & Ellis Research
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Office Directory
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Contributors and Sources
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© 2008 Grubb & Ellis
San Francisco Bay Area l 1
SAN FRANCISCO BAY AREA Office Weakening tenant demand will result in a softer office market in 2009. Sublease space and vacancy rates are predicted to rise while absorption and rental rates will decline. Market fundamentals will deteriorate, albeit less dramatically than they did during the dot-com bust.
Vacancy Rates
Market Overview
Although the unique industry base inherent
Year-End 30%
Challenging economic conditions will trans-
to the Bay Area will prevent market funda-
late into a difficult year for owners of
mentals from deteriorating to the degree
20%
commercial real estate in the Bay Area.
other major markets will, the ailing economy
Oakland and San Mateo were the first
will result in a slowdown in real estate trans-
markets to show signs of deterioration,
actions. Tenants will take longer to evaluate
posting negative net absorption for 2008.
lease opportunities in the face of uncertain
The stronger markets of San Jose and San
revenue projections. Financing challenges
Francisco finished 2008 with positive
will hinder demand as well. As demand
absorption, but are forecasted to record
slows and sublease space increases, down-
negative net absorption in 2009. The slow-
ward pressure on rents will escalate. Average
down
and
Class A asking rents declined in all Bay Area
deteriorating job market, coupled with the
office markets during 2008 and steeper
evaporation of business loans is sure to
reductions are anticipated. Rents are
negatively impact businesses throughout
projected to decline by 12 percent for the
the Bay Area in 2009.
entire Bay Area in 2009. Landlords will
10% 0%
00 02 04 06 08P 09F ■ Oakland/ ■ San Francisco ■ San Jose/ ■ San Francisco/ Eastbay Mid-Peninsula Silicon Valley Source: Grubb & Ellis
Historical Absorption Year-End (in Thousand SF) 5,000 0 -5,000 -10,000
00 02 04 06 08P 09F ■ Oakland/ ■ San Francisco ■ San Jose/ ■ San Francisco/ Eastbay Mid-Peninsula Silicon Valley Source: Grubb & Ellis
in
consumer
spending
In addition to the reduction in loan dollars available from struggling financial institu-
aggressively seek tenants by offering concessions such as free rent.
tions, an impending slowdown of venture
Confidence among developers has dissi-
capital investment will also adversely affect
pated and several speculative office
Asking Rental Rates
tenant demand, particularly in the Silicon
buildings have been scrapped. Construction
Year-End ($/SF/Yr. Full Service)
Valley. During 2009, venture capital invest-
activity, which was modest to begin with
ment levels will be driven significantly by the
due to geographical land constraints, will
cleantech sector, which according to the
decline to minimal levels in 2009. Market
National Venture Capital Association, “will
fundamentals will weaken as bankruptcies,
continue to grow despite economic woes
mergers and tenant contractions transpire.
and could become the top investment
Vacancy in the Bay Area office markets is
sector for the venture capital industry by
projected to rise throughout 2009. Although
2012.” Already the high-tech capital of the
Bay Area commercial real estate is in for a
world, the Bay Area will benefit in the long
rough ride in 2009, the anticipated down-
run as the global hub of the emerging clean-
turn is predicted to be less severe than the
tech and biotech industries. Revitalization of
one brought on by the dot-com collapse. A
San Francisco’s Mission Bay neighborhood
bottom in sales pricing and rents is antici-
has been led by the development of
pated to be reached in late 2009, paving the
biotechnology friendly office buildings in
way for a comeback as capital access returns
which UCSF, Phizer, FibroGen and Merck-
and economic recovery ensues.
$80
$40
$0
00 02 04 06 08P 09F ■ Oakland/ ■ San Francisco ■ San Jose/ ■ San Francisco/ Eastbay Mid-Peninsula Silicon Valley Source: Grubb & Ellis
owned Sirna Therapeutics have committed to space. 2 l San Francisco Bay Area
© 2008 Grubb & Ellis
San Francisco
vacancy to continue to rise as 1.5 million
them to shop the market for the best deals
Confidence in San Francisco’s office market
square feet slated for completion in 2009
and landlords to court tenants with more
has deteriorated in the face of a global
comes online. As the national government’s
concessions as well as continuing to offer
economic downturn. From a leasing perspec-
$740 billion bailout plan helps to free up
short-term deal options.
tive, the effects of the recession will
capital, tenants that have been sitting on the
materialize in increased sublease space, rising
sidelines will be able to benefit from quality
San Francisco/Mid-Peninsula
vacancy, lower tenant demand, deterioration
space at lower asking rates as landlords add
2008 was the first year since 2003 to show a
in rental rates and emptying of the develop-
more incentives to fill vacancies. Despite the
real pullback in the San Francisco/Mid-
ment pipeline. Capital access challenges are
negativity surrounding the economy, Silicon
Peninsula office market. While 2007 was a
expected to hinder business operations and
Valley has a silver lining when compared to
time for landlords to test tenants’ tolerance
office expansions substantially. Available
the rest of the nation.
for escalating rents, 2008 and 2009 will bring more opportunities and variety to the
sublease space, which increased in 2008, will flood the market in 2009 forcing landlords to
Oakland/East Bay
market. With a limited number of financial
lower rental rates on competitive space.
The mortgage meltdown coupled with the
tenants, and high-tech employment contin-
Although a downturn is expected, market
credit crisis weighed down the East Bay
uing to serve as the anchor for a large
fundamentals in San Francisco are predicted
office market throughout 2008. Many
portion of demand, the Peninsula office
to hold up better than in other major markets
companies
market will likely rebound ahead of the rest
due to the city’s unique tenant base and
regarding their real estate commitments
construction limitations.
and adopted a wait-and-see attitude which
remained
very
cautious
translated into four consecutive quarters of San Jose/Silicon Valley
increased vacancy and a softening of overall
Silicon Valley’s office market responded to
rents. As the national economic challenges
the economic challenges of 2008 with an
spill over into 2009, look for sublease space
increase in vacancy of approximately 50
to rise, asking rental rate erosion and
basis points per quarter, a shift from the
vacancy to continue its climb upward. As
downward trend that began the first quarter
tenants jump into the driver’s seat, watch for
of the Bay Area. With only one major construction project scheduled to complete in 2008, and a nearly empty pipeline, the San Francisco/MidPeninsula is positioned well to weather the current economic downturn. Expect rents to soften and vacancy to increase, however we should not see as deep a decline as in the previous down cycle.
of 2006. Going forward we anticipate
Key Leasing Transactions 2008 Lessee Robert Half Google Inc California State Automobile Association PG&E SF Public Utilities Commission Pfizer Inc Trend Micro Gunderson, Dettmer, Stough Rearden Commerce Inc Motorola Lab 126 Sony Ericsson © 2008 Grubb & Ellis
Lessor Sunset Land Company Prime Property Fund Equity Office Properties Trust Nearon Enterprises Metcalf Family Trust Alexandria Real Estate Blue Coat Systems Starwood Capital Harvest Properties Ariba Prometheus LBA Realty
Property 2613 Camino Ramon 345 Spear St 3055 Oak Rd (Station Landing) 3401 Crow Canyon Rd 1155 Market St 455 Mission Bay Blvd 10201 N De Anza Blvd 1200 Seaport Blvd 1001-1051 E Hillsdale Blvd 809 11th Ave 20450 Stevens Creek Blvd 100 Redwood Shores Pkwy
Submarket San Ramon South Financial Contra Costa Centre San Ramon Civic Center Mission Bay Cupertino Redwood City Foster City Sunnyvale Cupertino Redwood City
Size (SF) 236,000 195,654 166,204 140,000 140,000 105,000 104,990 98,022 91,363 91,000 70,000 62,721 San Francisco Bay Area l 3
SAN FRANCISCO BAY AREA Industrial Despite the challenges currently facing the economy, the Bay Area industrial market is poised to remain healthy throughout 2009. The market will experience demand but deal velocity will be slower than it has been over that past two years.
Vacancy Rates
Market Overview
a market driver in both the East Bay and
All Product Types, Year-End
Despite the negative national economic
Silicon Valley markets. This is in comparison
landscape, two major drivers helped main-
to the Peninsula where sublease space hit
tain
momentum
the market due to rising travel time and the
throughout 2008: clean technology activity
increased cost of fuel. Grubb & Ellis expect
and the decreasing dollar, which increased
warehouse vacancy on the Peninsula to
exports. This was in contrast to the office and
increase over the next couple of years while
retail sectors, which experienced increased
the East Bay and Silicon Valley markets
vacancy in the latter half of the year due to
remain steady.
20%
10%
0%
00 02 04 ■ Oakland/ ■ San Jose/ Eastbay Silicon Valley Source: Grubb & Ellis
06
08P 09F
positive
industrial
frozen credit markets, negative GDP and Moving forward into 2009 Grubb & Ellis
reductions in workforce.
Historical Absorption
anticipates asking rents will remain steady in
All Product Types, Year-End (in Thousand SF)
Clean technology company activity in Silicon
the East Bay and slightly decrease in Silicon
Valley and the East Bay not only maintained
Valley and Peninsula as landlords hold off on
positive market momentum but also helped
raising rates until the market regains its
to reduce any large general industrial and
balance. Tenants will remain cautious about
R&D/flex blocks of space that had been sitting
making moves until the government’s
vacant or given back to the market.
efforts begin freeing up credit, reassuring
Approximately two-thirds of the leases
them that it is time to come off the sidelines
completed in Silicon Valley in the third
and move forward with expansion plans.
quarter, over 750,000 square feet of gross
While there is still considerable uncertainty
Warehouse Asking Rental Rates
absorption, were done by clean technology
in the market, space options in the Bay Area
Year-End ($/SF/Yr. Triple Net) $12
tenants. Furthermore, two of the biggest
markets are extremely tight and landlords
deals inked in 2008 in the East Bay market
are advised to work with tenants that have
$8
were done by clean technology tenants.
upcoming lease expirations during these
$4
A weakening dollar that buoyed exports
10,000
-10,000
-30,000
00 02 04 06 ■ Oakland/Eastbay ■ San Jose/Silicon Valley
08P 09F
Source: Grubb & Ellis
$0
00 02 04 ■ Oakland/ ■ San Jose/ Eastbay Silicon Valley Source: Grubb & Ellis
06
08P 09F
overseas coupled with a desirable Bay Area
Limited industrial base inventory along with
location resulted in positive momentum in
almost no new construction coming online
warehouse/distribution space. A constrained
means there is little to compete with existing
product type, warehouse proved to be
inventory. No new construction is expected in the Silicon Valley or the East Bay in 2009 and
Key Leasing Transactions 2008 Lessee Fed Ex Coaster Super Micro BioRad Laboratories Optisolar
Lessor LBA Realty Prologis Pinole Point Sares Regis Group PNK, LLC
turbulent times.
the Peninsula expects to see 78,000 square Property 8333 Central Avenue 6753 Mowry Avenue 48350 Fremont Blvd 2100-2900 Atlas Rd 31164-31172 Huntwood Ave
Submarket Newark Newark Fremont Richmond Hayward
Size (SF) 320,875 268,538 246,450 116,500 60,000
feet. Going forward we anticipate a new economic playing field, new interest in sustaining U.S. jobs versus offshoring work, as well as continued technology innovation and environmental initiatives will help the Bay Area weather through the storm.
4 l San Francisco Bay Area
© 2008 Grubb & Ellis
San Jose/Silicon Valley
Oakland/East Bay
The Silicon Valley industrial market remained
Despite the national economic turmoil experi-
healthy throughout 2008 despite national
enced this year, the East Bay continued to post
economic challenges. Not since the last
positive market performance. This marks the
recession in 2001, which hit the technology
fourth consecutive year of positive net
sector hard and ultimately affected the
absorption in the East Bay. Although the trans-
R&D/flex product type, has industrial seen an
action volume was not as high as the previous
increase in vacancy. In this economic down-
years, it did help to push vacancy down 40
turn, real estate-related industries and the
basis points to 3.5 percent. The primary driver
office sector were affected, while technology
for this positive net absorption was ware-
companies kept market fundamentals
house space, which accounted for well over
strong in industrial.
50 percent of the positive net absorption in the market. Despite the fact that rental rates
Clean technology tenants actively leased space though at 2008 signing average lease terms of 52 months. This could mean that in the next three to four years as leases expire and these growing companies seek to
were escalating through the entire market in 2007, rents remained relatively flat in 2008. The construction pipeline, which has been empty for three consecutive years, will remain empty in 2009 as land continues to be scarce.
expand, landlords offering large blocks of space can benefit from the opportunity. But,
Watch for steady transactions and flat rental
they but will need to offer bigger tenant
rates
improvement packages to accommodate
The market will experience demand but deal
clean tech’s requirement of heavy power and
velocity will be slower than it has been over
large lab space. This trend coupled with no
the past two years. As we advance through
new developments projected to complete in
next year look for industrial investors to
the near future will offer nothing to compete
gravitate toward markets with consistent
with the already limited available inventory.
market performance, such as the East Bay, and
While this is positive for the industrial sector,
avoid more volatile markets thus eliminating
it is unlikely that it will totally escape the
unnecessary risk. Although the space options
downturn in the national and global
in the East Bay market are extremely tight,
economies. While industrial demand is often
landlords would be advised to work with their
said to be a lagging economic indicator, into
tenants that have upcoming lease expirations
2009 we expect to see slight vacancy
during these turbulent times. The Port of
increases and rental rates decreases
Oakland along with the Oakland Airport
although not to the degree experienced in
continue to identify this market as one of the
other commercial real estate sectors.
key global pathways, setting the East Bay
to
continue
throughout
2009.
apart as one of the most sought after industrial markets in the country.
© 2008 Grubb & Ellis
San Francisco Bay Area l 5
SAN FRANCISCO BAY AREA Retail Brace for a rough retail year in 2009 throughout the Bay Area - consumer confidence that is in the dumps as well as diminished consumer demand and the credit crisis coupled with a challenged housing market will put pressure on tenants as well as landlords.
Median Household Income
The wave of growth that Bay Area retail has
With stringent lending requirements and a
2008 (in Thousands)
been enjoying over the past few years came
weakened dollar, retail is in store for a rough
crashing down in 2008. The mortgage melt-
road ahead. As a result of these turbulent
down coupled with the financial crisis that
times some retailers have already filed for
the nation is wrestling with has stifled
bankruptcy protection. Examples include
consumer
confidence.
Circuit City, Mervyn’s and Sharper Image.
Consumers have clamped down on
While other companies, such as the Gap
spending in reaction to tightening credit,
have announced plans to significantly
mounting layoffs and stock market losses.
reduce the number of stores nationally.
Backing this up is the International Council
This will put additional pressure on
of Shopping Centers Chain Stores report
landlords who are already feeling the
noting the weakest retail comparable-store
pain in the market.
U.S. Average San Francisco/ Oakland/ East Bay San Jose/ Silicon Valley $0
$40
$80
Source: Claritas
Typical Rent In-line Shop Space, 2008 ($/SF/Yr. Triple Net)
demand
and
sales performance in more than 35 years.
U.S. Average
Additionally
the
Conference
Board
San Francisco
Consumer Confidence Index plummeted to
Oakland
its lowest level in the 40-year history of the
San Jose/ Silicon Valley
survey. Another market indicator to watch is $0
$40
$80
Mortgage Equity Withdrawals (MEW), which measures the availability of home equity
Source: Grubb & Ellis
through borrowing and when plotted against retail expenditures, it is evident these
Retail Square Feet Per Capita 2008
activities are in lockstep with one another. Harder to attain credit and reduced net
U.S. Average
equity values have translated into less
San Francisco
availability of MEW credit and a reduction in
Oakland
retail sales. The more discretionary in nature
San Jose/ Silicon Valley
the items seem to be, the less people will 40
44
48
spend on them in times of stress and especially in periods where one has
Source: Grubb & Ellis, CoStar, Claritas
difficulties extracting their home equity.
The Bay Area retail market will remain challenged throughout 2009. Watch for retail consolidation to continue. Rents will continue to decline as vacancies climb upward.
Landlords
will
give
more
concessions to tenants either in the form of higher tenant improvement allowances or free rent. As people still need essentials, neighborhood
centers
with
grocery
and drug stores should fare best during this time. Neighborhood shopping centers located near high-income areas are also expected to weather the storm in 2009. All signs point to another rough year for retail, but these vacancies will provide better real
estate
opportunities
and
less
competition for some retailers.
The difficult mortgage environment and the
Tenants Expanding or Downsizing 2009 Expanding or New to Market Cellular & Accessory Stores Casual Dining Restaurants Health & Personal Care Wholesale Clubs Building Materials, Garden & Supply
6 l San Francisco Bay Area
Downsizing Auto Dealerships Department Stores High End Restaurant Home Furnishings Clothing & Accessory Stores
substantial reduction in home values combined to greatly curtail borrowing and as a result, discretionary spending.
© 2008 Grubb & Ellis
SAN FRANCISCO BAY AREA Investment The credit crunch effectively ended an incredible five-year run in pricing and activity. With capital availability likely to remain limited in 2009, look for heavily leveraged investors to unload properties to cash rich buyers at reduced prices.
Average Capitalization Rates
Market Overview
property sectors. Fallout from home foreclo-
Closed Sales (2008)
Upheaval in the financial markets has
sures in the Bay Area should remain
8%
greatly disrupted commercial real estate
relatively restrained compared to some
6%
investment throughout the Bay Area,
overbuilt Southern California markets.
4%
creating a bleak outlook for 2009. The credit
2%
crisis put an end to the record pace of deal velocity achieved in 2007. Investment
0%
Office
Industrial
Retail
Apartment
Hotel
transactions totaling approximately $5 billion closed in 2008, an 82 percent decline
Source: Real Capital Analytics
in dollar volume from 2007. Marketed
Property Sales Volume (in Billions) $40,000
investment
opportunities
are
scarce
heading into 2009 as uncertainty with regards to pricing runs wild. Lack of credit
$30,000
availability in the foreseeable future will
$20,000
result in a significant slowing of capital into real estate, keeping the flow of new acqui-
$10,000
sitions $0
02 04 06 08P 09F ■ Office ■ Industrial ■ Retail ■ Apartment ■ Hotel
Source: Real Capital Analytics
minimal
throughout
2009.
Leveraged buyers are expected to reemerge in 2010 when capital access improves. Even cash-rich public pensions will have limited capacity for new invest-
Sales by Property Type 2008
Apartment Hotel Industrial Office Retail
21.3% ■ 0.4% ■ 8.9% ■ 57.7% ■ 11.7% ■
ments in 2009 as plunging stock and bond
Perspective buyers can be assured that investing in Bay Area real estate represents a tremendous long-term opportunity. San Francisco is considered the West Coast’s premier office market and one of the most dynamic real estate investment markets in the world. Technology companies continue to drive demand in San Jose where employment and income growth are robust. Oakland/East Bay remains a vital Bay Area hub housing the fourth largest port in the nation. Beyond local economic strength, investment properties are situated to benefit from the Bay Area’s standing as a coastal global pathway. Large familiar markets like San Francisco are favored in the typical flight-toquality that occurs during a downturn.
values have significantly reduced their
An upheaval among highly leveraged
asset bases. Across the board, companies
investors will create opportunities moving
have geared up for recession by reserving
forward. Cash investors will be afforded open-
cash. This new focus on solvency and cash
ings to purchase distressed properties at
management
acquisition
market lows. Ultimately prices are expected
activity for many investment companies in
to decline 20 to 30 percent from the highs
the near term.
achieved in 2007. Investors willing and able to
will
hinder
Source: Real Capital Analytics
While financial crisis grips the nation and negatively affects real estate investment nationwide, the strength of the local
take a risk by acquiring property at reduced prices in 2009 will likely position themselves to benefit greatly when recovery ensues.
economy should help Bay Area properties withstand a difficult period. The region’s uniquely diversified economy is predicted to outperform the national average, helping all
© 2008 Grubb & Ellis
San Francisco Bay Area l 7
SAN FRANCISCO BAY AREA Investment continued
San Francisco
San Jose/Silicon Valley
investment levels enjoyed just last year.
The Urban Land Institute ranks San Francisco
Overall commercial property sales in 2008
Looking toward 2009, values will continue to
as the premier city for development and the
continued to fall with transaction volume
adjust downward as a result of the credit
second-best city for commercial investment
through August off 75 percent compared to
debacle; cap rates will continue to climb by
in its Emerging Trends in Real Estate 2009
the same period in 2007. Towards the end of
at least 25 to 50 basis points creating the
report, noting, “The City by the Bay never
2008, buyers and sellers hadn’t yet settled on
opportunity for better returns and the ability
strays far from the top of the survey,
a new price level and the gap between
to acquire properties at below current
featuring a Pacific gateway with barriers to
offers and actual pricing remained wide. Into
replacement costs. Both regional and institu-
entry and quality of life, comparing favorably
2009, the investment market should begin
tional investors that have been sitting on the
to any other 24-hour market.” While property
to see slight improvement as the govern-
sidelines in the latter half of 2008 and begin-
values did fall in 2008, the ultimate decline is
ment helps to free up capital and property
ning of 2009 will take the lead in those
not expected to be as dramatic as it was
values should decrease allowing opportu-
opportunities. Back are the days of lower
during the 2000-2001 tech bust. Values are
nity for buyers with cash on hand to pick up
loan-to-value ratios, higher debt coverage
predicted to find a bottom approximately 20
quality space. Owners should continue to
ratios and stronger tenant evaluation.
to 30 percent below highs reached in 2007.
hold onto investments in 2009. San Francisco/Mid-Peninsula
Land constraints create a barrier to new construction; helping maintain the value of
Oakland/East Bay
The San Francisco/Mid-Peninsula investment
existing investment quality properties.
What a difference a year makes with 2008
market has been hit significantly by a much
investment transaction volumes down
tighter credit market and an economic
significantly compared to the robust
decline. Only a handful of properties traded hands in 2008, and with rents on the decline
Key Investment Transactions
buyers and sellers alike will likely adopt a
2008 Buyer CIM Group LaSalle Bank JV Harvest Properties JV INVESCO Legacy Partners CBRE Investors Thor Equities PNC Realty Investors VNO Patson Van Ness Holdings United Dominion Realty Trust Shorenstein Properties JV SKS Development Angelo Gordon JV Centrum Properties LBA Realty Eden Township Healthcare District Prado Group JV Felson Cos Nearon Enterprises Sares-Regis Group Intuitive Surgical Nearon Enterprises
8 l San Francisco Bay Area
Property Type
Property Name
City
Size (SF)
Price (millions)
Office Retail Office Office Office Office Office Office Apartment
CIM Group Portfolio Bay Street Emeryville Parkside Towers Ygnacio Center 500 Terry Francois Phelan Bldg 199 Freemont St CSAA Portfolio Edgewater Luxury Apts
Oakland Emeryville Foster City Walnut Creek San Francisco San Francisco San Francisco San Francisco San Francisco
1,739,125 383,055 398,000 499,231 291,000 267,446 396,200 597,574 157,135
$412.5 $234.0 $179.8 $174.3 $149.0 $130.0 $127.4 $118.5 $115.0
Industrial
Oyster Point Bus Park
South San Francisco
404,215
$84.0
Industrial Office
SFO Logistics Center 4900 Johnson Dr
South San Francisco Pleasanton
568,823 288,000
$80.0 $66.5
Office Apartment General Industrial Warehouse R&D/Flex Warehouse
Dublin Gateway Medical Center Nob Hill Tower Sycamore Drive 48350 Fremont Blvd 950 Kifer Rd 940 Remillard Ct
Dublin San Francisco Milpitas Fremont Sunnyvale San Jose
115,000 108,000 197,604 246,500 163,286 166,600
$60.0 $37.2 $22.0 $21.0 $16.5 $16.0
wait-and-see stance. Watch for the gap between asking and offering prices to close in 2009 and for cap rates to shift upward. Considering the ongoing turbulence among U.S. capital markets, it is anticipated that property values and velocity will fall in the near-term future. As capital access returns and the economy begins a slow recovery cycle, the Mid-Peninsula investment market will be well positioned for a comeback.
© 2008 Grubb & Ellis
COMPANY PROFILE
Grubb & Ellis is a real estate services and investment firm committed to identifying and creating business and investment opportunities through real estate, uniquely tailored to our clients’ individual needs.
Grubb & Ellis is one of the largest and most
Grubb & Ellis has the people, platform and
Structured Around the Needs of Our Clients
respected commercial real estate services
best-in-class processes to deliver superior
Our unique, comprehensive platform includes
and investment companies. With more than
service whether a client needs help with a
transaction services, management services,
130 owned and affiliate offices worldwide,
single investment property or multiple
corporate services and a wide range of
Grubb & Ellis offers property owners, corpo-
global facilities. Our consistent performance
investment programs.
rate occupants and investors comprehensive
grounded in keen market insight plays a role
integrated real estate solutions, including
in our success and is recognized by our
transaction, management, consulting and
clients. For example, in 2008, Grubb & Ellis
investment services supported by propri-
was honored with Microsoft Corporation’s
etary market research and extensive local
Environmental Award for our successful
market expertise. Grubb & Ellis and its
efforts to reduce the company’s impact on
subsidiaries are leading sponsors of real
the environment. This commitment to
estate investment programs that provide
continuous improvement and the develop-
individuals and institutions the opportunity
ment of programs and initiatives designed to
to invest in a broad range of real estate
meet a client’s individual needs are the
investment vehicles, including tax-deferred
driving forces behind our more than 50 years
1031 tenant-in-common exchanges, public
of service excellence.
non-traded real estate investment trusts and
Transaction Services
Grubb & Ellis has one of the largest and most experienced real estate brokerage sales forces in the country. Our teams of specialists cover all aspects of commercial real estate and work closely with owners, occupants and investors to assess the ways in which real estate issues relate to – and contribute to – an organization's strategic business objectives. Last year, Grubb & Ellis and its affiliates completed 16,250 transactions valued at more than $22 billion.
real estate investment funds.
Seamless Integration of Real Estate Products and Services
Transaction services include:
Research plays an integral role in our busi-
Grubb & Ellis is a unique company that
• Agency leasing
ness, and our professionals have earned a
brings together traditional transaction and
reputation for providing informed solutions
management real estate services with inno-
that combine local market knowledge with
vative investment programs offered through
detailed analysis. Strong knowledge about
Grubb & Ellis Realty Investors. Our brokerage
• Valuation consulting
general economic issues and global trends –
network offers insight into the pool of assets
• Retail services
combined with specialized expertise for
nationwide, maximizing investment oppor-
• Institutional investment services
property types such as office, industrial, retail,
tunities for program investors. In turn, the
land, medical office, multifamily and hospi-
property and asset management services of
tality – provides our clients the information
the company seek to drive value to each
they need to achieve their corporate and
property, capitalizing on opportunities from
investment goals.
acquisition to disposition – whether it be for
• Tenant representation • Consulting services
• Private capital investment services • Site selection
our own portfolio or on behalf of our clients.
© 2008 Grubb & Ellis
San Francisco Bay Area l 9
COMPANY PROFILE continued
Grubb & Ellis was the recipient of Microsoft’s Environmental Award in 2008
Global Client Services
Corporate services include:
Investment programs include:
As one of the nation’s largest full-service
• Consulting services
• 1031 tenant-in-common exchanges
• Real property and lease administration
• Public non-traded real estate
commercial real estate firms, Grubb & Ellis delivers integrated property, facility and asset management services focused on cost-effi-
investment trusts (REITs)
• Retail services
cient operations, tenant retention and
• Strategic planning
• Limited liability companies
increasing property values to a host of corpo-
• Tenant representation
• Wealth management
rate and institutional clients. The company
• Valuation services
• Institutional investments
• Site selection
• Mutual funds
• Project management
• Securities separate accounts and funds
and its affiliates manage a diverse portfolio totaling more than 275 million square feet of space. This portfolio includes headquarters,
This is neither an offer to sell nor a solicitation of an offer to buy any security. Such an offer may be made only by means of an offering document. Investors should read the offering materials and review the risks associated with any offering prior to making an investment and should be able to afford the loss of their entire investment. Securities offered through Grubb & Ellis Securities, Inc. member FINRA/SIPC.
facilities and Class A office space for major
• Portfolio rationalization
corporations, as well as industrial, manufac-
• Disposition services
turing and warehouse facilities, data centers,
Investment Programs
retail properties, medical buildings and
Grubb & Ellis is one of the nation’s leading
multifamily assets for real estate occupants
sponsors of innovative commercial real
Our Commitment
and investors. Additionally, Grubb & Ellis
estate investment programs. Grubb & Ellis
A strong, integrated delivery platform
provides consulting services that help clients
Realty Investors, the company’s real estate
combined with the expertise of our profes-
better understand their real estate portfolio,
investment
management
sionals offers our clients a partnership unlike
the current operating environment, and
subsidiary, structures, acquires, manages and
any other in the industry. We bring strategic
future opportunities that exist through smart,
disposes of real estate for its clients. Through
thinking and exceptional service to each and
strategic planning.
Private Client Accounts, the firm offers high
every engagement. We deliver perspective,
net worth investors a comprehensive
insight and innovation to help our clients
program to build or expand their commercial
achieve their desired outcomes. And we
real estate portfolio to meet their investment
execute effectively and efficiently, enabling
• Facility management
objectives. In total, Grubb & Ellis Realty
us to form long-lasting collaborative relation-
• Asset management
Investors oversees a portfolio of assets valued
ships with property owners, investors and
• Business and fulfillment services
in excess of $6.5 billion located throughout
corporate users of real estate.
Management services include: • Property management
• Consulting services • Project/construction management • Engineering services
10 l San Francisco Bay Area
and
asset
more than 30 states, and has completed acquisition and disposition volume totaling more than $11 billion on behalf of program
To locate a Grubb & Ellis office near you, please visit www.grubb-ellis.com/offices.
investors since its founding in 1998.
© 2008 Grubb & Ellis
GRUBB & ELLIS RESEARCH
Grubb & Ellis is one of the most widely quoted sources when it comes to real estate market trends and their implications.
For more than 50 years, Grubb & Ellis has
professional research managers to direct
that analyze local and national market
made real estate market research a corner-
the company’s research function, which is
conditions throughout North America by
stone of its business. The company has built
widely viewed as having the most accu-
product type, a Weekly Market Insight
a reputation for consistently delivering some
rate grass-roots level data in the industry.
electronic communication on a timely
of the highest quality research reports in the
Incoming research analysts and brokers
economic or real estate-related topic,
industry and regularly provides expert
are trained to understand the nuances of
quarterly capital markets reports and
commentary on the forces shaping the
the real estate cycle, inflection points in
white papers on issues that are important
commercial real estate landscape. As the
the cycle, leading indicators, and the
to our clients.
issues facing real estate owners, corporate
actions and advice that are appropriate for
users and investors grow increasingly
each phase of the cycle.
• Our real estate professionals, whose famil-
iarity with the people and the property in
complex, sound research and analysis
• Our systems used to compile, maintain,
their submarkets yields a daily, in-the-
become even more vital, and our research is
analyze and disseminate our research.
trenches grasp of changing market
a tool our professionals rely on to help their
Grubb & Ellis was a pioneer in the field of
conditions. The creation of market intelli-
clients solve real estate issues, uncover
computerized market research and
gence is a team effort, with knowledge
opportunities and achieve larger organiza-
analysis and continues to make invest-
flowing constantly between our research
tional objectives.
ments to improve and enhance the
teams, sales professionals and investment
information available. Most of the
specialists. This knowledge is integrated
company’s offices have been tracking
with our professionals’ insight and experi-
data for more than two decades. In addi-
ence, forming a solid foundation from
tion to subscribing to the top property
which to advise clients, and giving Grubb
databases in the industry, Grubb & Ellis has
& Ellis and its clients a competitive edge.
built a proprietary, centralized Web-resi-
Among our clients, we have seen an
dent data warehouse to track its
increased demand for more accurate data
property-specific data, including property
and sharper analysis fueled by increased
details, images, available space, leasing
market transparency and a strong need for
and sales comparables, and tenant infor-
accountability. Real estate investors as well
mation, all in an easy-to-use format. This
as corporations in all sectors of the economy
sophisticated system is based on a
are closely examining their real estate strate-
Grubb & Ellis leverages four integrated
rigorous set of research standards
gies and searching for timely and smart
components to create our unique and
designed to ensure that data are consis-
market research that will help guide and
comprehensive insights:
tent across markets.
support their decisions. Providing this infor-
Grubb & Ellis research reports span from coast to coast and around the globe. We cover big-picture economic trends as well as specific drivers of local market demand for space. We provide standard real estate statistics and also respond to significant developments, such as the credit crisis of 2008. Our research is used by our clients, the media and the industry at large to help explain current conditions and predict what the future has in store.
• Our professional research managers and
their staff, whose critical function it is to build the base of market intelligence in each office and provide published reports and custom analyses to our clients. Grubb & Ellis pioneered the concept of hiring
• Our reports and publications through
which we translate our extensive databases
into
analysis,
insights
mation is one of the things Grubb & Ellis does best.
and
actionable recommendations for our clients. In addition to our annual national and local forecast reports, Grubb & Ellis
To keep abreast of research disseminated by
Grubb
&
Ellis,
please
visit
www.grubb-ellis.com/research.
produces quarterly Market Trends reports © 2008 Grubb & Ellis
San Francisco Bay Area l 11
OFFICE DIRECTORY Corporate Headquarters Santa Ana California 714.667.8252 Alabama Mobile Peebles & Cameron, LLC 251.438.4312 Arizona Phoenix BRE Commercial, LLC 602.954.9000 Tucson 520.321.3330 Arkansas Bentonville Solomon Partners 479.271.6118 North Little Rock Solomon Partners 501.975.0547 California Anaheim 714.939.6000 Bakersfield ASU & Associates 661.862.5454 Carlsbad BRE Commercial 760.431.4200 El Cajon BRE Commercial 619.462.3100 Fresno Pearson Commercial 559.432.6200 LA Downtown 213.596.2222 LA East (San Gabriel) 562.364.2000 LA North (Sherman Oaks) 818.332.2000 LA South Bay (Torrance) 310.491.2000 LA West 310.477.3800 Newport Beach 949.608.2000 Ontario 909.605.1100 Pleasanton 925.218.3388 Redwood City 650.596.2460 Riverside 951.530.1700 Roseville 916.770.8900 Sacramento 916.418.6000 San Diego Downtown BRE Commercial 619.515.0017 San Diego (Otay Mesa) BRE Commercial 619.661.0657 San Diego UTC BRE Commercial 858.546.5400 San Francisco 415.433.1050 12 l San Francisco Bay Area
San Jose 408.452.5900 San Luis Obispo Central Coast Commercial 805.541.5000 Santa Barbara 805.564.3366 Temecula WestMar 951.491.6300 Visalia Pearson Commercial 559.732.7300 Walnut Creek 925.939.3500 Colorado Colorado Springs Quantum Commercial Group 719.590.1717 Denver 303.572.7700
Indiana Indianapolis Harding Dahm & Company 317.844.2700 Mishawaka/South Bend Cressy & Everett 574.271.4060 Iowa Des Moines Mid-America Commercial 515.222.0605 Kansas Lawrence The Winbury Group 785.865.5100 Wichita Martens Commercial Group, LLC 316.262.0000
Connecticut Stamford 203.406.9899
Maryland Baltimore 410.625.4200 Bethesda 301.530.8200
Delaware Wilmington 302.888.4500
Massachusetts Boston 617.772.7200
District of Columbia Washington, D.C. 202.312.5400
Michigan Detroit 248.350.9500 Grand Haven Paramount Commerce 616.296.0604 Grand Rapids Paramount Commerce 616.774.3500 Holland Focus Properties 616.394.4500 Kalamazoo Paramount Commerce 269.978.0245
Florida Boca Raton 561.995.5150 Fort Myers 1st Commercial 239.210.7600 Jacksonville Phoenix Realty Group 904.399.5222 Melbourne Commercial Florida 321.984.1957 Miami 305.982.4100 Orlando Commercial Florida 407.423.1200 Tampa Commercial Florida 813.639.1111 Georgia Atlanta 770.552.2400 Hawaii Honolulu CBI, Inc. 808.942.7100 Idaho Boise Idaho Commercial Group 208.287.9500 Illinois Chicago 312.698.6700 Columbia Gundaker Commercial 618.281.8800 Rosemont (O’Hare) 847.390.8040t
Minnesota Minneapolis Northco Real Estate Services 952.820.1600 Mississippi Gulfport Sawyer Commercial 228.863.0232 Missouri Chesterfield Gundaker Commercial 636.728.5100 Kansas City The Winbury Group 816.531.5303 St. Louis (Clayton) Gundaker Commercial 314.719.2000 Montana Bozeman Montana Commercial, LLP 406.587.8700 Kalispell Montana Commercial, LLP 406.755.8485
Nebraska Lincoln Pacific Realty 402.467.1234 Omaha Pacific Realty 402.345.5866 Nevada Las Vegas Las Vegas Commercial Brokerage, LLC 702.733.7500 Reno NCG 775.332.2800 New Hampshire Bedford Coldstream Real Estate Advisors, Inc. 603.623.0100 Portsmouth Coldstream Real Estate Advisors, Inc. 603.433.7100 New Jersey Edison 732.225.0433 Fairfield 973.486.2500 Marlton 856.334.2100 New Mexico Albuquerque New Mexico 505.883.7676 Las Cruces New Mexico 505.523.6000 Santa Fe New Mexico 505.989.3900 New York New York (Midtown) 212.759.9700 Wappinger Falls Facility Resource Group 845.296.3200 North Carolina Chapel Hill Thomas Linderman Graham 919.968.4017 Raleigh Thomas Linderman Graham 919.785.3434 North Dakota Fargo Marc C. Johnson & Campbell, LLC 701.281.5200 Ohio Cincinnati West Shell Commercial 513.721.4200 Cleveland 216.861.3040 Columbus Adena Realty Advisors 614.436.9800
Oklahoma Oklahoma City Levy Beffort 405.840.1500 Oregon Portland 503.241.1155 Pennsylvania King of Prussia 610.337.1010 Philadelphia 215.561.8300 Pittsburgh 412.281.0100 South Carolina Charleston Barkley Fraser 843.725.7200 Columbia Wilson Kibler 803.779.8600 Greenville The Furman Co. 864.242.5151 Myrtle Beach Wilson Kibler 843.946.7100 Tennessee Chattanooga Hudson 423.698.8660 Memphis Memphis, LLC 901.761.1717 Nashville Centennial, Inc. 615.320.7500 Texas Austin 512.349.1000 Corpus Christi Coastal Bend 361.994.0649 Dallas 972.450.3300 El Paso Best/White LLC 915.772.9082 Houston 713.626.8888 Mission/McAllen Select Regional Solutions 956.630.4300 San Antonio 210.828.5050 Virginia Charlottesville Real Estate III Commercial 434.817.1240 Richmond Harrison & Bates 804.788.1000 Tysons Corner 703.448.2000
Washington Seattle 206.388.3000 Wisconsin Appleton Pfefferle 920.968.4700 Green Bay Pfefferle 920.884.5000 Madison Oakbrook Corporation 608.238.2600 Milwaukee Apex Commercial 262.784.7500 Waupaca Pfefferle 715.258.8000 Wausau Pfefferle 715.355.6060 Wyoming Cheyenne Wyoming Commercial 307.432.4070 Canada Avison Young Calgary 403.262.3082 Edmonton 780.428.7850 Halifax, Nova Scotia 902.442.4050 Mississauga 905.712.2100 Montreal 514.940.5330 Ottawa 613.567.2680 Quebec City 418.694.3330 Regina 306.359.9799 Toronto 416.955.0000 Vancouver 604.687.7331 Winnipeg 204.947.2242 Mexico Ciudad Juarez Best/White de Mexico 011.52.656.629.1111 Monterrey Select Regional Solutions 877.445.4070 Reynosa Select Regional Solutions 899.929.3830 San Luis Potosi Select Regional Solutions 444.811.1771 © 2008 Grubb & Ellis
CONTRIBUTORS AND SOURCES
Grubb & Ellis research teams across the U.S. work together to ensure our clients have the most up-to-date market knowledge.
Contributors
San Francisco
Erin Proto, Assistant Vice President Client Services Manager – Bay Area Jesse Gundersheim, Senior Research Analyst Asa Flynn, Research Analyst San Jose
Dina Simoni, Research Services Manager Walnut Creek
Erin Proto, Assistant Vice President Client Services Manager – Bay Area Katie Burton, Senior Database Coordinator Redwood City
Asa Flynn, Research Analyst Sources
IREN, Real Capital Analytics, State of California, Claritas, CoStar Group, Crittenden, The Conference Board, Urban Land Institute, PricewaterhouseCoopers, U.S. Census Bureau, National Venture Capital Association, International Council of Shopping Centers, U.S. Department of Commerce, Mercury News, San Francisco Business Times, San Jose Business Journal
© 2008 Grubb & Ellis
San Francisco Bay Area l 13
Grubb & Ellis offers its clients an integrated platform of real estate services and investment programs. We strive to meet the evolving needs and investment objectives of corporate owners and occupants as well as institutional and private investors. Transaction Services
• Agency leasing • Tenant representation • Consulting services • Valuation consulting • Retail services • Institutional investment services • Private capital investment services • Site selection Management Services
• Property management • Facility management • Asset management • Business and fulfillment services • Consulting services • Project/construction management • Engineering services Corporate Services
• Consulting services • Real property and lease administration • Retail services • Strategic planning • Tenant representation • Valuation services • Site selection • Project management • Portfolio rationalization • Disposition services Investment Programs
• 1031 tenant-in-common exchanges • Public non-traded real estate
investment trusts (REITs) • Limited liability companies • Wealth management • Institutional investments • Mutual funds • Securities separate accounts and funds
The direct or indirect purchase of real property involves significant risks. Investors should consult their own tax advisors and legal counsel. Always remember that each property is unique and past performance is no guarantee of future results.
WWW.GRUBB-ELLIS.COM