Silicon Valley Heavyweights & Where You Should Spend Your Money

JUNE 17, 2018

BenchMark’s, where the biggest real estate issues are answered by the best real estate audience.

Newmark Knight Frank’s pre-eminent San Francisco and Bay area event is BenchMarks. It is held in May each year. In 2017 the big question posed to the 300 strong NKF client audience, and answered by using an app to poll the results live, was –

Where would you spend your money?

Janette D’Elia of Jay Paul Company, Stephen Richardson of Alexandria Real Estate, Adony Beniares of Uber Technologies and Phil Mahoney, Vice Chairman of Newmark Knight Frank

The answers were all real estate related, barring “Keep your powder dry”, colloquial for cash, so in fairness buying a 1964 250 GTO Ferrari or a prized renaissance period artwork, both popular in Knight Frank’s Wealth Report, were not options.

In 2017, interestingly 40% of respondents opted for Multi Family real estate (known in Australia as Build to Rent), 20% were spread across sectors in Industrial, office and retail and then across geographies and 40% were camped in the “Keep your powder dry”.

The same question was asked at Benchmarks again this year (2018).  This time the answers were nearly equally divided between Multifamily (22%), Silicon Valley office (21%) and industrial/R&D (21%). It seems that there are still developers and investors willing to hold on to their cash but less than the previous year so there are early signs of impatience. Interestingly, Multifamily numbers were down and many people expressed that rents needed to lift by as much as 25% to make this hot and exciting category viable. Silicon Valley office is back and strong and this is consistent with the lack of SF city office stock, strong tenant demand and the continuing rise of technology across IT and Software, Social and Digital Media, Biotech and Life Sciences, Environmental and Clean tech, Automotive, Professional Services and International Business.

Most of the other questions that came up had to do with infrastructure, housing and homelessness – these seem to be the biggest challenges to tenant/population growth and none are new. In 2017 the burning problem was average commute per person per day. It was concluded that this was an alarming 113 minutes. Transport is a big issue in this car dependent city, however many of the ideas and future solutions involve technology and cars and they are clever.   

There was also a theme regarding corporate campuses – how do companies grow their divisions to the right size in the right place when there’s so little product near their current locations?  It turns out that not only the tenants on the panel have been thinking about this issue a fair amount but also the landlords, as they have been picking their projects on a parcel-by-parcel basis to fulfill tenant demands.

There is no doubt that property in San Francisco still has a gold rush feel to it. California is the fifth largest economy in the world, having just eclipsed the 66 million populated United Kingdom. California is just 40 million and punching well above its weight but the secret sauce is what is happening in business. There is excitement, big picture talk and prosperity everywhere. In California big challenges are simply seen as more opportunities.

Thanks to my colleague, Andrea Arata, Director of Research Newmark Knight Frank, San Francisco for her valuable feedback and contribution.