Inquiring minds want to know: is the office market still relevant in a work-from-home (WFH) world?
If you just look at the news, the messages are mixed. On the one hand, there’s Google confirming that it will move ahead with a major mixed-use project near Diridon Station called Downtown West. The proposal includes 7.3 million square feet of office space, 4,000 housing units, and up to 500,000 square feet set aside for retail, arts, and cultural events. On the other hand are headlines like this one from an Oct. 11 Bloomberg article: “Amazon Softens Return-to-Office Policy, Says Remote Work Is Fine.”
So which is it? We would argue that it’s both. Yes, WFH will continue in some capacity. But no, that does not mean the end of the office market as we know it. In fact, in Silicon Valley activity remains robust. Bisnow recently reported that there were five new mixed-use projects targeting San Jose “making their way through the planning pipeline,” collectively valued at billions of dollars. Five companies, including Apple, have the right to build nine million square feet of space in north San Jose. There’s the new BART station, which will be further transformative.
It’s projects like these that led the commercial real estate firm CBRE to name the San Jose metro area the number one market for office space development and Silicon Valley broadly as the “hottest ticket nationwide for future office development,” the Mercury-News reported earlier this year. Of course, many factors are unknown about future office development, but we are excited about San Jose’s potential for attracting office tenants.
The foundation is in place.
As office developers, there are three conditions we like to see in place when we consider a major project. First is market demand. Anyone paying attention to today’s headlines will see this condition has been met, with companies like Amazon, Apple and Google recently announcing plans to expand their office presence in the South Bay. Despite the pandemic, tech companies are still growing and hiring, and the Bay Area has been the recipient of these beneficial developments.
The demand is here.
The second is mass transit. Avoiding the commute is one of the major reasons employees like WFH. Access to quality public transportation makes it easier to get out of the car. Here, again, we like what we see. BART opened its new Berryessa station last year, with plans to start construction next year on the line into downtown San Jose, which will provide easy accessibility to the new offices and apartments as they come online. As Nani Klein, the city’s director of economic development put it, “Having the jobs close by gets the commuting patterns coming into San Jose and not out of San Jose.” That, in turn, provides support for restaurants, entertainment, retail, and other infrastructure.
Finally, there is government policy. California can be a difficult place to build. Fortunately, in San Jose, we have local officials who are generally supportive of development when it’s done by developers with the expertise to create high-quality projects that meet the needs of professionals and residents. There’s a recognition that growth that is sensitive to the needs of the community can be a positive influence for everyone.
Clearly, conditions are in place to build on San Jose’s growing market.
A magnet for talent
Earlier this summer, the Bay Area was again ranked #1 in the country for technology talent and investment by CBRE. Doomsayers notwithstanding, the combination of world-class universities, a highly productive venture capital ecosystem, and the presence of some of the most successful technology companies in the world should help support economic expansion across the region.
We recently spoke with a potential investor who works at a big Silicon Valley technology company. He was understandably concerned when his supervisor called him up to tell him he longer needed to come into the office. His personal items would be boxed up and sent to his house. He would be working from home for the foreseeable future. This worried him, and it was worrisome for anyone with an interest in the local office market.
As it turned out, the concern was misplaced, and a call to an acquaintance in his company’s HR department revealed the reason why: yes, they were requiring some of their employees to work from home. But, no, this did not mean they would be walking away from their leases. In fact, just the opposite. They had hired so many people during the pandemic that even on a hybrid work schedule they didn’t have enough space to bring everybody back. Other technology firms have found themselves in similar circumstances.
To meet this need, companies continue to invest significant sums across the region, with a focus on San Jose. Sales prices for existing commercial properties are trending up based on current and anticipated demand. So here’s the answer for those inquiring minds: both sides are right. WFH is real, but the unique benefits of the traditional office market aren’t going away.
Urban Catalyst is a sponsor of The DI Wire, and the article was published as part of their standard directory sponsorship package.