by Jodi Summers
Corner offices and cubicles are so last century. The new millennium workspace is versatile, with options for focused, individual work and also fully equipped to support collaborative groups, team projects and social interaction.
NAIOP, the Commercial Real Estate Development Association, recently held the Office Building of the Future design competition. The winning designers identified several common themes that could drive changes in how we “office” in the future. The biggest driver for change is personal technology, which has untethered workers from by providing the capability of completing service and information-based tasks from wherever they choose. An individual with a laptop can work from home, or at a wi-fi equipped location, or any variety of locations along the road.
The company of the future doesn’t have one grand office rather they have several smaller hub locations, closer to their workforce and rapid transit. This will result in a reduction of the average size of any individual office location, but shouldn’t impact demand.
“Office design is changing rapidly and our industry needs to position itself ahead of the curve,” offers Thomas J. Bisacquino, NAIOP president and chief executive officer. “This unique competition opened the door to thinking about what an ‘office’ may look like in the very near future.”
On the green side, the office building of the future should also be more affordable to build and operate, thanks to advances and cost reductions in construction materials and systems. Sustainability will become financially viable. Net-zero buildings will meet the demands of tenants as well as the improved building performance sought by building owners and developers.
Edited by Jodi Summers
The National Trust for Historic Preservation defines rehabilitate as: “To repair a structure and make it usable again while preserving those portions or features of the property that are historically and culturally significant.”
To successfully rehabilitate a historic building, they are offering us 10 basic principles to keep in mind when undertaking a rehabilitation project.
Of course, every project is different and will have different needs and solutions. But this handy reference guide is a great way to get you started.
by Jodi Summers
2013 is indeed a happy new year for office real estate. Let us begin the drum roll of good news by letting you know that office vacancy rates are dropping…and that means higher cap rates and better sales prices are in the future. What’s more, the next wave of office architecture is up for your consideration.
Recent job creation increased absorption pushed down vacancy rates in the office, helped by the limited new supply of space. (Above and beyond the 400,000 sq.ft. of new office space Office in the newly opened Red Building @ Pacific Design Center.)
As our economy creeps back to life, 2012 saw U.S. office vacancies drop to their lowest level in almost three years. Major contributing factors are the demand from energy and technology companies combined with a dearth of construction.
The National Association of Realtors Commercial Real Estate Outlook Vacancy rates in the office sector are projected to fall from an estimated 16.7% in 4Q 2012 to 15.7% in the 4Q 2013. The markets with the lowest office vacancy rates presently (in the fourth quarter) are Washington, D.C., with a vacancy rate of 9.6%; New York City, at 10.1%.
The Los Angeles vacancy rate is estimated to be 12.5%.
“What these findings suggest is that, in general, the industry is moving forward bit by bit. Nothing indicates a quick turnaround for commercial real estate, but it is improving,” observes Stephen Blank, the senior resident fellow for real estate finance at the Urban Land Institute. “Those who are patient and willing to rethink their expectations and adapt to market realities are the most likely to come out ahead next year. Investors must keep in mind recent progress made in the industry as they prepare for a slow but steady recovery. “
Given the lackluster yields of securities, Sandy Paul, national research director for Delta Associates contends that betters want a winning horse, and their stallion is commercial real estate. “Investors are looking to place capital in assets that are income-producing and have the benefit of tangible value,” Paul maintains. “Investors also may be concerned about potential volatility ahead, such as was seen during the October 2008 financial crisis and the August 2011 downgrading of US debt. Domestic commercial real estate benefits from its traditional status as a safe haven during periods of uncertainty.”
The Los Angeles office real estate recovery will advance in 2013, making modest gains in leasing, rents, and pricing.
In Los Angeles, according to Loopnet, lease rates for office properties close out the year at $22.12 per square foot…up 0.7% from 2012. (And up 0.7% from 2011, as well.) As a point of perspective, July 2008 was the last lease rate peak, with asking rents averaging $27.01 per square foot. The lowest asking lease rate in the past three years was $21.87 set in February 2012. We are currently 4.5% off the zenith.
Please consider….there is new wave in office real estate rolling in…major tenants like Yahoo, Google and Red Bull, among so many others…are willingly pay high rents in return for more efficient design layouts and lower operating costs in LEED-rated, green projects. The EZ lease off of the future features open floor plans characterized by a lack of individual offices with walls and doors. More on this in the next blog…
We’re here to help you with your commercial and investment property needs. Please contact Jodi Summers and the SoCal Investment Real Estate Group @ Sotheby’s International Realty – firstname.lastname@example.org or 310.392.1211, and let us move forward together.
Here’s what’s happening with the Los Angeles County office building market according to Marcus & Millichap’s Los Angeles Metro Area Third Quarter 2012 Office Research Report:
■ Los Angeles County added 77,900 jobs in the last year ending with 2Q 2012. This is a 2.1% increase. Large gains in the private sector offset cuts in government and manufacturing payrolls during this time.
■ The professional and business services sector is said to be the key to Los Angeles’ economic recovery. The expansion of high-tech companies and major law firms supported a year-over-year addition of 20,100 employees in the second quarter. As the rest of the state regains economic footing, more companies in the county will increase payrolls.
■ The passing of the Patient Protection and Affordable Care Act immediately siphoned $7 million into community health clinics across the county, helping fulfill the need for more healthcare professionals. As a result, the education and healthcare services sector expanded by 16,800 employees in the last year.
■ Outlook: In 2012, county employers will hire 52,000 workers at a 1.4% increase year over year. Office-using employment will expand 3% as 29,000 individuals are added to payrolls this year.
■ Projects totaling 116,000 square feet of space have been completed in the past year. This amounts to a 0.1% increase to stock. In the preceding year, developers added 828,000 square feet to inventory.
■ There is approximately 1.4 million square feet of space under construction across the county, much of which is scheduled for completion this year. The Red building at the Pacific Design Center accounts for 400,000 square feet of that total, and is expected to be finished in the fourth quarter of 2012.
■ The planning pipeline for office space anticipates 6.7 million square feet coming online. Most of the planned projects are concentrated in the San Fernando Valley and Westside Cities submarkets.
■ This year, builders will complete 1.1 million square feet of office space, up from the 309,000 square feet of space that was added last year, and surpassing the most recent five-year average completion rate of 820,000 square feet annually.
Countywide vacancy will in the second half to finish at 14.9%. 4Q 2012 rate will mirror the vacancy level recorded at the end of last year.
Following limited growth of 0.4% last year, asking rents for the county will rise 1.0% to $32.40 per square foot. Effective rents will gain 1.5% to $26.39 per square foot after inching up 0.9% in 2011.
The Los Angeles office real estate market is still unimpressive, but, believe it or not, we’ve got it better than most, thanks to our focus on green and technology.
“The energy and the tech-driven markets are the clear standouts right now. It has become a reoccurring theme that markets in Texas and California are leading the nation in most demand and rent growth metrics,” supports Kevin Thorpe, Cassidy Turley’s chief economist.
While San Francisco led the country in rent growth compared to a year-ago, Los Angeles ranked in the top 10 markets, along with San Jose, Seattle, Austin, Denver, Miami, Orlando and Raleigh, NC. Overall, the West region led the way with the largest amount of new net demand, followed by the South, then the Midwest and the Northeast, respectively. Nationwide, nearly one third of markets reporting an uptick in sales.
“We are at a point where there is healthy job creation, but over 50% of the jobs created in recent months using office space were temp jobs,” shares Thorpe. “These jobs don’t move the needle immediately for the office sector, but they do set the stage for much stronger demand numbers down the road.”
Export statistics note that U.S. office rents hit bottom at the end of 2010. But given that there are still high vacancy levels, lease rates are not expected to increase anytime soon. It’s anticipated that office asking will increase by approximately 1% this year.
“Overall, the first quarter presented a mixed bag of results and expectations for the rest of the year,” notes John Sikaitis, senior vice president of research at Jones Lang LaSalle. “While the recovery slowed during the quarter, it remains intact.”
Technology expansion and startup activity gained momentum in almost every market with prospects for growth. Additionally, energy-heavy markets posted some of the largest leases and witnessed sales momentum and speculative new construction.
“Looking ahead to the remainder of 2012, markets will continue to recover, and in some cases contract, at different rates of speed,” observes Sikaitis. “Overall rents across most markets will grow, but at slow and measured paces unless some significant cushion of technology or energy pockets exist.”
By Jodi Summers
When creating office space, use a fresh approach. Google’s idea for their new space on Main St. Venice, puts the user first. For the same reason Google chose one of the most unique building in one of the hippest locations in the country for their office space > 340 Main St., Venice, 90291 > in hopes of luring the best talent. They’ve taken the same approach to their office space in the Binoculars building > make it a user-friendly experience.
Google’s goal (try saying that 5x fast) is to create the healthiest work environments possible so Google masterminds can thrive and innovate. From concept through design, construction and operations, the search engine’s goal is to create a brick + mortar workplace that optimizing access to nature, clean air and daylight. The great thing about is happens to be is what’s good for Google is good for the neighborhood.
Let’s explore how the fabric of Main St. is going to change for a better non-car experience…Thomas Williams, Google’s Venice office director, recently attended a Venice Neighborhood Council meeting and shared the info that about 450 engineers will move into space @ 340 Main Street in early November. He also pledged that the company will have a positive impact on the community.
“Generally, they are fairly young, they like computers, and they are really smart,” Williams shared.
At the same meeting, the VNC approved a motion that is also of interest to Main St. Santa Monica. They approved the “Main Street Diet,” a plan to change the configuration of Main Street by adding bike lanes, reducing traffic lanes and adding a center median. These bike tracks are also being discussed in Santa Monica’s bicycle action plan.
It is expected that approximately one-third of the company’s employees bike, walk or take public transportation to work. “A lot of people are happy because they are going to be able to walk to work now,” Williams said. All 450 of the people who will be relocating to the Venice office currently work in Google’s local offices.
Google is well-known for its support of bike commuters – Venice has a large number of bikers and surprisingly little support for them in the North-South directions. Perhaps now we will develop plans for bike lanes and street lights through the long, dark stretches along Main Street.
WeLoveVenice.com noted that this is a huge potential win for locals. They are hoping that Google will bring more logical bus routes, such as from Washington Blvd. to downtown Santa Monica. As well as other innovative routes from Santa Monica’s Big Blue and Culver City buses that run throughout Venice without it being necessary to walk a mile to Windward Circle to catch one.
Anything to make Main St. more pedestrian friendly is a good thing and a nice step to greening the neighborhood….
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