CCIM Northern California Chapter San Francisco Broker Investment and Leasing Forum October 9, 2014 Wells Fargo Bank Penthouse San Francisco Office Market Update Market Knowledge. Insight on Trends. Expert Forecasts. Garrick Brown Vice President, Research Western United States [email protected] Cranes, Cranes Everywhere…. Salesforce Tower 222 2nd Street 415 Mission Street 452K SF 1.4 Million SF 2K Available 700K Available 07/2015 01/2017 Transbay Transit Center 350 Mission Street 181 Fremont Street 451K SF 416K SF 6K Available 416K SF Available 01/2015 06/2016 Cranes, Cranes Everywhere…. Salesforce Tower 222 2nd Street 415 Mission Street 452K SF 1.4 Million SF 2K Available 700K Available 07/2015 01/2017 Transbay Transit Center 350 Mission Street 181 Fremont Street 451K SF 416K SF 6K Available 416K SF Available 01/2015 06/2016 Cranes, Cranes Everywhere…. 535 Mission Street 329 Brannan Street 307K SF 180K SF 201K Available 0K Available Pending… 08/2015 Kaiser SF Public Safety Building 1600 Owens Street 1351 3rd Street 182K SF 151K SF -K SF Available 0K Available 10/2015 12/2014 Cranes, Cranes Everywhere…. 535 Mission Street 329 Brannan Street 307K SF 180K SF 201K Available 0K Available Pending… 08/2015 Kaiser SF Public Safety Building 1600 Owens Street 1351 3rd Street 182K SF 151K SF -K SF Available 0K Available 10/2015 12/2014 Cranes, Cranes Everywhere…. 345 Lansing 320 Units 06/2015 1000 Channel St 273 Units 09/2015 260 5th St 325 Octavia St 176 Units 182 Units 10/2015 02/2015 701 China Basin 188 Units 04/2015 Can the Market Absorb it All? 4.8 Million SF of Office Space Now Under Construction 50% Already Pre-Leased 30% in Negotiation Still 18 Months from Peak Deliveries San Francisco Office Market Net Absorption, New Construction (SF) & Vacancy Trend 1,500,000 17% 15% 1,000,000 13% 500,000 11% 0 9% (500,000) 7% 7.1% (1,000,000) Vacancy now at lowest level since Q2 2000! 5% Net Absorption New Construction Vacancy Source: Cassidy Turley Research Is Demand Cooling? Net Absorption Trend 1,600,000 Annual Occupancy Growth 17% 1,400,000 1,200,000 2010: 1.1 M SF 15% 1,000,000 2011: 4.2M SF 13% 800,000 2012: 2.1 M SF 600,000 2013: 566K SF 11% 400,000 2014YTD: 2.4M SF 200,000 9% 0 (200,000) 7% (400,000) (600,000) 5% Net Absorption New Construction Source: Cassidy Turley Research Demand Still Hot Demand Trends We are tracking 17.1 million SF of Office & R&D requirements throughout Bay Area. This number is up 10% from last year. We are tracking 3.9 million SF of current space user requirements in San Francisco. San Francisco Office Market Vacancy & Average Asking Rate (FSG) Trend 25% $80.00 $70.94 $56.89 $70.00 20% $60.00 15% $50.00 $40.00 10% $31.67 $30.00 $24.99 $20.00 5% $10.00 0% $0.00 Asking Rents up 80% from recession lows. Vacancy Avg. Asking (FSG) Source: Cassidy Turley Research Bay Area Space User Requirements By Industry Total Total SF Average Size Requirements Software/Internet 119 5,975,611 50,215 Professional Services 140 3,533,700 25,241 Consumer Products/Services 58 1,139,500 19,647 Hardware/Tech Tech Users Account23 1,133,500 for 49,283 Medical/Health Care 32 1,081,300 33,791 Government/EducationRoughly 70% of21 All805,000 38,333 Communications/MediaCurrent Demand21 604,000 28,762 Clean Technology 7 398,000 56,857 Life Science 16 361,500 22,594 Non Profit 16 205,000 12,813 Aerospace/Defense 2 90,000 45,000 Undisclosed 76 1,796,500 23,638 Total 532 17,128,611 32,197 San Francisco Office Market Net Absorption, New Construction (SF) & Vacancy Trend 3,000,000 24% Dot.com Dot. Great Tech 2.0 2,000,000 Bomb Recession Boom 20% 1,000,000 16% 0 12% (1,000,000) 8% (2,000,000) 4% (3,000,000) (4,000,000) 0% S&L Rollercoaster Net Absorption New Construction Vacancy Source: Cassidy Turley Research Does Tech Boom 2.0 Have Staying Power? Uh Yeah… Tech: San Francisco Clustering The Bigger Picture The “Flat World” View “Thanks to technology and competition in telecoms, distance will soon be no object...” – The Economist Magazine, 1995 “The wireless revolution is ending the dictatorship of place in a more profound way…” –The Economist Magazine, 1999 Technology is making place irrelevant… isn’t it? Place Still Matters… Immensely “There are many advantages that children can enter this world with—including intelligence, physical power and agility, good looks and caring parents. It also matters where you live.” – Edward Leamer, Economist, UCLA Anderson School of Management Globalization/Tech Revolution is not Either/Or We Are Seeing Both Simultaneously… • Globalization/Flat World • Geographic spread of routine economic functions – Manufacturing – Service work – Support work (call centers, etc.) • Concentration • Concentration of higher-level economic activities – Innovation/tech – Design – Finance – Media Economic Output is Concentrating… Not Spreading… Concentrated Populations = Economic Output Economic Output is Concentrating… Not Spreading… These Areas Account for 80% of USA Output Mega-Region Population (Millions) Economic Output (Billions) # of Metros Bos-Wash 56.5 $3,751 41 Chi-Pitts 41.8 $2,314 60 Char-lanta 22.0 $1,149 45 So-Cal 21.8 $1,204 5 So-Flo 16.9 $765 15 Tor-Buff-Chester 16.4 $593 22 Nor-Cal 14.5 $909 17 Dal-Aus 11.9 $723 8 Hou-Orleans 10.8 $755 12 Cascadia 9.7 $593 11 Phoenix-Tucson 5.3 $256 2 Denver-Boulder 4.2 $256 5 Concentration: Pre-Requisite to Innovation Young workforces need to be corralled Clustering brings Productivity advantages Economies of scale Knowledge spillover Innovation, economic growth and prosperity continue to occur in places that attract a critical mass of top creative talent Globalization increases the returns on innovation… Fast rollouts of innovative products and services Increases lure of innovation centers for planet’s best and brightest Why Place Matters • Despite all the hype over globalization, place is actually more important in the global economy than ever before. • Places are growing more diverse and specialized— from their economic makeup and job market to the quality of life they provide and the kinds of people who live in them. • We live in a highly mobile society, giving most of us more say over where we live. Global IPO Trends 2013 $137 Billion Globally in 2013 Europe: $26.9 Billion Asia Pacific: $44.9 Billion North America: $54.9 Billion Middle East & Africa: $1.4 Billion Latin America: $12.1 Billion Global Total: $140.2 Billion North America Accounted for 39% of all Activity Source: Renaissance Capital/ Cassidy Turley Research IPOs Driving Growth Significant Bay Area IPOs (Public) US IPO Trends 2013 US IPO Historical Trends In 2013, the US IPO market posted its strongest showing in over a decade. Proceeds by Sector in 2013 US Total Bay Area Total As of midyear 2014, Sector # $(B) % of $ # $(B) % of $ Energy 22 $10.7 19% 2 $0.43 8% the US IPO market Financial 45 $10.2 19% 1 $0.23 4% Health Care 54 $8.6 16% 8 $0.79 15% was on pace to Consumer 19 $8.3 15% 3 $0.4 8% Technology 45 $7.9 14% 15 $3.45 65% surpass 2013 totals Capital Goods 14 $3.7 7% 0 $0.0 0% Transportation 7 $1.8 3% 0 $0.0 0% by at least 15%. Materials 9 $1.5 3% 0 $0.0 0% Business Services 3 $1.4 3% 0 $0.0 0% Communications 4 $0.8 1% 0 $0.0 0% Utilities 0 $0.0 0% 0 $0.0 0% Source: Renaissance Capital/ Cassidy Turley Research Total 222 $54.9 29 $5.31 Source: Renaissance Capital, SalesGenie, Cassidy Turley Research © Cassidy Turley 2014 Bay Area IPO Trends 2013 Proceeds by Sector (% of $) in 2013 The San Francisco Bay Area has emerged as the clear leader, nationally and globally, in terms of technology-related IPOs, accounting for 65% of all US activity last year. Source: Renaissance Capital/ Cassidy Turley Research Source: Renaissance Capital, SalesGenie, Cassidy Turley Research © Cassidy Turley 2014 Bay Area IPO Trends 2014 Bay Area IPOs in 2014 (Midyear 2014) Bay Area IPO Locations YTD 2014 Company Industry IPO Status Target ($M) GoPro Technology Jun 2014 $427.0M Business TriNet Mar 2014 $240.0M Svcs Arista Networks Technology Jun 2014 $226.0M A-10 Networks Technology Mar 2014 $188.0M Castlight Health Health Care Mar 2014 $178.0M Coupons.Com Technology Mar 2014 $168.0M Versartis Health Care Mar 2014 $126.0M Ultragenyx Health Care Jan 2014 $121.0M Pharmaceuticals MobileIron Technology Jun 2014 $100.0M ZenDesk Technology Jun 2014 $100.0M Revance Health Care Jan 2014 $86.3M Therapeutics Aerohive Networks Technology Mar 2014 $75.0M Achaeogen Health Care Mar 2014 $72.0M Five9 Technology Apr 2014 $70.0M Ardelyx Health Care Jun 2014 $60.0M Corium International Health Care Apr 2014 $52.0M Adamas Health Care Apr 2014 $48.0M Pharmaceuticals Energous Technology Mar 2014 $24.0M Sysorex Global Technology Apr 2014 $20.0M Enterprises YTD 2014 IPOs: 20 | $2,469M Source: Renaissance Capital, SalesGenie, Cassidy Turley Research © Cassidy Turley 2014 Bay Area IPOs Still Strong in 2014 Proceeds by Sector through YTD 2014 (Midyear 2014) US Total Bay Area Total Sector # $(B) % of $ # $(B) % of $ Energy 17 $7.5 24% 0 $0.0 0% Financial 16 $6.9 22% 0 $0.0 0% Technology 37 $6.6 21% 10 $1.4 66% Health Care 52 $3.6 12% 9 $0.8 34% Business Services 5 $2.5 8% 1 $0.2 0% Consumer 9 $2.2 7% 0 $0.0 0% Capital Goods 7 $1.1 3% 0 $0.0 0% Transportation 3 $0.6 2% 0 $0.0 0% Materials 1 $0.2 1% 0 $0.0 0% Communications 0 $0.0 0% 0 $0.0 0% Utilities 0 $0.0 0% 0 $0.0 0% Total 147 $31.4 20 $2.5 Proceeds by Sector (% of $) YTD 2014 (Midyear 2014) Proceeds by Sector (% of $) YTD 2014 (Midyear 2014) 65% Bay Area IPO Trends 2014 Bay Area Pending IPOs (Filings) in 2014 (Midyear 2014) Bay Area IPO Watch List Company Industry IPO Status Target ($M) Box Technology