Market Insight Editorial & Advice to Tenants: 4Q1998
Rising Office Market Rates—Understood?
The only thing more confusing than the meteoric rise of e-commerce stocks is the fact that rental rates for office space to support these companies are still holding up. Which part of the statistics do we not understand?
San Francisco, home to scores of Internet and multimedia companies, absorbed only 119,000 square feet of space—in all of 1998. All around the Bay, in fact, the net result of all leasing activity was pitifully dismal: net, net negative 9,000 square feet. Space is sitting on the market for several months at a time.
Riddle me this, Mr. Tenant: If you search San Francisco for 10-15,000 square feet of space on one floor, available within the next six months, how many options do you have? 134, located in 58 different buildings. So, how is the market responding to this phenomenon?
Check out the chart below. While tenant demand has waned, landlords are preparing an onslaught of new inventory. Since we have negative growth, why do we need 25 million square feet of new space in the Bay Area? In Silicon Valley, why does the market need 30 times more space by year end ’99 than was absorbed in 1998?
We are going to see a serious market correction, unless a barrage of new tenant demand arises from the depths of the venture capital community. Word to the wise, both Landlord and Tenant: Roll up your sleeves and start negotiating.
Please note: We provide Bay Area market data and analyses for the current year only. To request commercial real estate market data for previous quarters, please contact us.
Less Is More: You’re Fired
We have been discussing in previous Editorials, the contrasting objectives of Board officers and investors; and the general workforce. Wall Street typically applauds belt-tightening measures and other “savings” (layoffs), while the workforce simply takes it in the gut. M&A, restructurings, layoffs, consolidations and other synonyms seem rarely to lead to higher real estate valuations.
Note: The vacancies referenced above do not reflect any consolidation by Bank of America. Strap in and prepare for a wild ride.
Casualties (Newly announced layoffs & facility closures):
| Boeing Co. | 20,000 jobs, totaling 48,000 (21% of workforce) |
| BP/Amoco Corp. | 6,000 jobs |
| Cadence Design Systems | 560 jobs (12% of worldwide workforce) |
| Case Corp. | 3,400 jobs (20% of workforce) |
| Chevron | 1,500 jobs (4.4% of workforce) |
| Citigroup | 10,400 jobs (6.5% of worldwide workforce) |
| Cooper Industries | 1,000 jobs (3.6% of workforce, close 12 facilities) |
| Deutsche Bank AG | 5,500 jobs (5.7% of workforce) |
| Diamond Multimedia | 180 jobs (20% of workforce) |
| Erickson | 10,000 jobs |
| Ford Motor Co. | 2,800 jobs (35% of Brazilian workforce) |
| General DataComm | 200 jobs (14% of worldwide workforce) |
| Heinz Co. | 400 jobs (17% of frozen food staff) |
| Hercules Inc. | 700 jobs (5% of workforce, close 6-8 major facilities) |
| ITT Industries | 1,200 jobs (3% of workforce) |
| J.P. Morgan | 750 jobs (5% of workforce) |
| Johnson & Johnson | 4,100 jobs (4% of workforce, close 36 facilities) |
| Kellogg Co. | 765 jobs |
| Lam Research | 500 jobs (15% of workforce) |
| Lear Corp. | 2,800 jobs (4% of workforce, close 18 plants) |
| Liz Claiborne | 400 jobs, close 30 of its 230 stores |
| MCI WorldCom | Up to 15,000 jobs, or 20% of workforce |
| Northrup | 2,000 jobs, totaling 9,100 jobs (17% of workforce) |
| Polaroid Corp. | 700 jobs (7% of workforce) |
| Royal Dutch/Shell Group | 3,000 jobs |
| SPX Corp. | 1,000 jobs, close 25 offices |
| SyQuest Technology | 950 jobs. Filed Chapter 11. Ending manufacturing. |
| Texaco | 1,000 jobs (12% of exploration/production workforce) |
