San Francisco and Santa Clara County are two of the hottest commercial real estate markets in the region, if not the nation.
So hot that some of the biggest names in tech town are looking fondly at an area smack dab in the middle of the two: oft-forgotten San Mateo County.
Last month, Google, headquartered in Mountain View, bought 1 million square feet of office space (reported price, $600 million) in Redwood City. Cloud storage company Box is leasing a 334,000-square-feet of space at Crossing/900, a new office complex under construction in Redwood City as its new headquarters and subleasing its old headquarters in Los Altos. RingCentral, a cloud phone vendor, is moving into an 84,000-square-foot space in Belmont, and Rakuten, a fast-growing Japanese e-commerce company, just signed a lease for 57,000 square feet in the city of San Mateo.
“There are others out in the market looking for space, between 12,000 and 1 million square feet,” said Bob Garner, executive managing director at commercial real estate broker Newmark Cornish & Carey in San Mateo.
Some are already looking at a site where Seabiscuit won races in the 1930s and Willie Shoemaker began his career in the 1940s. Ground is being broken next week on the first of five office buildings totaling up to 1.5 million square feet in a commercial development dubbed Bay Meadows Station. It’s the first commercial development at the former site of 74-year-old Bay Meadows racetrack, now an 83-acre master-planned community with some townhomes, condos, parks and a high school already open.
“We’re very bullish on the area, from office to residential. It’s right in the heart of things in the Bay Area, between San Francisco and San Jose,” said Janice Thacher, partner at San Francisco’s Wilson Meany, the project’s master developer, in partnership with San Francisco real estate investment firm Stockbridge Capital Group.
When completed, on a date to be determined, the “urban village” will house up to 1,100 residential units, retail outlets, 18 acres of public parks, which include a community garden and open space. The first 210,000-square-foot office building is scheduled to be complete in July 2016. Neither Thacher nor Garner, whose firm is the project’s leasing agent, would disclose the names of potentially interested tenants, but said there is already quite a bit of “activity.”
A big draw
Who is likely to be first in line?
“Primarily technology. I’d say 70 percent, plus life sciences and a little bit of services,” said Garner, when asked which sectors are scouting the area.
With stratospherically priced San Francisco running out of space, and more tech workers looking to live and work closer to San Francisco than the southern Peninsula, the interest in San Mateo is not surprising. San Mateo County, population 750,000, also has a lot of what these companies are looking for: being in the northern part of Silicon Valley; intersecting highways connecting San Francisco, San Jose and the East Bay; Caltrain (which runs from San Francisco through San Jose); and a port in Redwood City, the county seat.
“From there it’s 25 miles to San Francisco, 25 miles to San Jose and minutes to Stanford,” said Rosanne Foust, CEO of the San Mateo County Economic Development Association. “It’s got access to capital, educational resources and good quality of life.”
Investors and developers appear to have gotten the message. Commercial real estate is seeing “dramatic rent increases and a wave of speculative development not seen in years,” according to Colliers International’s third quarter real estate report.
“Speculative development” means proceeding with a project on unused land, assuming its value will increase. It got a drubbing during the Great Recession, but has returned in the San Francisco-San Jose corridor, powered largely by the explosion of tech. “That’s what was most interesting to me about the Bay Meadows project,” said Foust. “Nothing had been built for years on spec. They must have known the lay of the land.”
“Let’s say it wasn’t necessarily our plan all along,” said Thacher, “but given how dynamic the market is and the demand for space, getting out in front of it seemed important.” So, presumably did Kilroy Realty, which developed the twin office building snapped up by Box on spec.
San Francisco International Airport has also taken notice. It is evaluating bids to operate a 350-room, “four-star or five-star” hotel it plans to build on airport property by 2018, on account of the increasing domestic and overseas traffic it expects, and an “analysis of the landscape telling us why, with the available capacity on the Peninsula, a hotel of that standard would work,” said SFO spokesman Doug Yakel.
Four- and five-star hotels aren’t cheap. Neither are the offerings at Bay Meadows, at least compared with what it cost to play the ponies there back in the day. Two-bedroom homes go for $800,000 to $1 million. Class A offices are going for “just under $4 per square foot,” said Thacher. That’s slightly less than the average asking rent on the Peninsula, but a deal compared to San Francisco’s $59 per square foot, according to Collier’s latest report.
If former Reddit CEO Yishan Wong is reading this, he’s entitled to some schadenfreude. Wong wanted to relocate Reddit’s headquarters from San Francisco’s South of Market district to a new Class A office building in Daly City ($45 per square feet), right off Interstate 280, and a couple of blocks from BART. That led to his resignation this month over what he described in a blog post as “strategic disagreement” over the move. In other words, probably a staff rebellion something along the lines of: why would we work there?
“If the job had been a energizing one rather than one that had been so draining, this probably wouldn’t have been an issue I resigned over,” Wong wrote. “But it was, and I’d be lying if I said I wasn’t relieved to have the burden off my shoulders,” he said.
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