Real Estate Panel Shares Insights Into the Industry Including Costs, Commutes and What the Future Holds
EAST PALO ALTO, Calif. – February 24, 2016 – The Northern California chapter of Society of Industrial and Office Realtors® (SIOR) held its annual kick-off event, a dinner meeting, at the Four Seasons Palo Alto. Panel moderator, Luis Belmonte, principal, Seven Hills Properties, provided the color commentary to keep the momentum going throughout the program. Panelists included Michael Johnston, vice president, Menlo Equities; Hanns Lee, regional senior vice president, Irvine Company; Dan Letter, managing director, capital deployment, Northwest Region, Prologis; and Jordan Schnitzer, president of Harsch Investment Properties.
The group first tackled where the commercial real estate market is heading. Lee indicated that from a regional perspective, values are being driven by increasing rental rates and low cap rates, which indicates a signal to moderation, not a bubble.
Schnitzer said there is not a huge amount of office space because it is being absorbed due to strong job creation and demand. He said the markets are in great shape but the question is what will happen in two to three years? Schnitzer pointed to three challenges: assessing demand, gauging the amount of capital sloshing around and how to best compete because of the first two challenges.
Because commercial real estate is affected by movement of people and movement of capital, it is important to get in front of the movement of capital, the group pointed out. Belmonte said there is a fear that the Bay Area’s one-horse economy centered around tech could prove fatal if that bubble bursts, adding “venture capitalists are nervous”.
When addressing the question of whether or not tenants still love California, the group had love/hate answers. Johnston said the Bay Area has the best quality of life with more opportunities but it is costly. Lee pointed specifically to a “love-hate relationship but in spite of government and costs, customers find it imperative to be here among the talent and spirit of entrepreneurialism.” Schnitzer said, “California is an amazing place – there is no perfect place.” However, he pointed to the need to resolve commutes and costs because mobile millennials are not keen on the current situation.
When discussing the latest trends, the group pointed to transforming vacant big-box retail space into fulfillment/return centers because of regional mall vacancies due to the convenience of online shopping. Other trends were mixed-use projects including housing and retail, especially urban centers for live/work/play options.
Reasons for insomnia included gauging how long the cycle will continue, international events, housing shortages and transportation/infrastructure issues, and the current U.S. political system.