Hans Hansson | September 15, 2017
Warehouse demand is at an all-time high and industrial vacancies are at their lowest point in nearly two decades at 5.3 percent, according to JOC.com's data hub. Yet, building of warehouse space throughout the country is not keeping up with this demand. Why?
Simply put, the costs to secure the land, build, and then find a tenant does not make economic sense in most markets. Rents for warehouse spaces have remained relatively flat throughout the country until recently.
E-commerce fulfillment is a big reason why the demand for warehouses and distribution centers has increased of late, representing 40 percent of leasing of industrial properties today, according to a recent report from Jones Lang LaSalle.
In California, warehouse rents are doubling and in some cases tripling due to the legalization of marijuana. Warehouse spaces that used to sell at .50-.75 cents a square foot is now selling at $2.00 a square foot. In markets like Santa Rosa, California landlords are advertising two prices –$1.25 for non-marijuana use and $2.00 a foot for marijuana use. According to a CBRE article, 4.2 million sq. ft. of Denver, Colorado’s industrial market in Q4 2016 was occupied by marijuana growers.
Of course, at $2.00 a foot, it would make sense to build warehouses. The challenge we’re really seeing is that marijuana remains illegal on a federal basis. As a result, non-conventional funding sources from banks to hand out loans used to build warehouses are not allowed to support buildings that house marijuana.
In addition, if a landlord decides to add a marijuana tenant in their building, even if they had no loan on that particular building, their banks could legally take away any other loans on other properties owned by that landlord since they have illegal use in one of their properties.
In California, the marijuana demand has made it far more expensive for true warehouse users to not only find space, but to keep the space they have. In Santa Rosa, the Alhambra Water company will not have their lease renewed in favor of their current landlord wanting to add a marijuana cultivation operation in its place.
Unfortunately, the county is certainly not motivated to do anything but allow the expansion of marijuana. The fee structures established for marijuana cultivation is adding millions to the city. Until there is financing available to build marijuana cultivation warehouses, rents will continue to skyrocket.
What happens to the cost of basic services if businesses have to find warehouses further and further away from their marketplace in order to store their products? They will have to commute farther to bring their products to their marketplaces, making the warehouse location not only a hassle, but more expensive for the business.
Amazon is looking to build “super warehouses” across the country in order to meet their expected demand for their online products and now food with the recent acquisition of Whole Foods. As a result, there are different types of warehouse usages cropping up, such as indoor soccer fields, large gyms, and other sports facilities that are looking to reinvent their properties.
Local county and state planning is essential to provide quick decisions on warehouse development so that warehouse construction can happen and meet this demand. If not, the consumer in the end will be paying for it with much higher product costs and potentially face shortages in food and other basic product needs.
Hans Hansson | July 28, 2017
Amazon recently announced the largest office lease signing this year in San Francisco– 180,000 square feet and occupying multiple floors at 525 Market Street. This deal presents a number of ramifications to both the current and future commercial leasing market. Amazon released a statement saying that San Francisco’s current tech market is still booming and that firms still want to be here in the city.
With the Boom Comes Doom
This may be a not-so-positive outlook for conventional businesses who have lease renewals nearing. More likely than not, landlords will want to sign new leases with larger tech firms who have deeper pockets.
Today, most leases that are going to expire after five-year terms will be seeing rent increases of at least 40 percent. For most businesses, they will not be able to pay the increased rent and will be forced to move out. The challenge is that with a vacancy of less than six percent overall, businesses will be forced to not only move, but make some drastic decisions on how small of space they can occupy and where.
Other businesses will have to look at their overall profits and decide if and when they need to make cuts. They will also need to review current business operations and determine what changes can be made to reduce spending or reallocate budget. Some of these changes may be minor. For instance, I have a client that is considering eliminating his conference room altogether because he simply doesn’t use it. I know of others who are looking to eliminate private offices in favor of open plans in order to lower square footage needs and costs. Minor moves like these can actually have major consequences on not only day-to-day operations but long-term.
Supply Doesn’t Meet the Demand
The largest issue we have is the slow process of office space development. San Francisco needs to develop spaces sooner in order to meet the demand. This has been a real challenge as we continue to see building costs skyrocket and the beyond lengthy process it takes to acquire land and actually develop buildings in the city. For a developer, this means taking a tremendous risk with an upfront investment, not knowing if the site will even be approved for development.
Old Laws With New Action Come Into Play
In addition, past city propositions, dating back to the 1980’s are now coming into action, along with potential delays on new measures to help enhance office development. In the 1980’s San Francisco passed an office limitation ordinance known as Proposition M. This established an “under one million square foot” annual cap on office space growth. Each year, whatever annual square footage was allowed that wasn’t built could be placed on “reserve” for future years.
For most of the years since the passing of Proposition M, there has been little to no office development. But today, almost all of the reserve space has been occupied, which means that we have little expansion of office space left. There are numerous projects, including office development plans for the San Francisco Giants, as well as expansion around the Golden State Warriors’ new stadium site. In addition, there are major office developments throughout South of Market (SOMA) planned– all of which will be at risk with Proposition M.
In adding to the list of challenges– San Francisco’s SOMA plan, which would rezone buildings from 4th street to 7th street in order to create office, residential, and hotel development, is now facing new opposition. Current condo owners are concerned of the larger scale projects causing shadowing throughout their neighborhood. All of which can be worked out, but will certainly cause delays.
Delays occurring within a boom market are not going to be good if our city cannot react to the needs of the marketplace in a timely manner. The city needs to be proactive in streamlining office development projects so we encourage growth, not delay it. With the city just passing the largest budget in its history at $10 billion, and with less than $50 million in available discretionary funds– any dip in business opportunities can have devastating effects on our city, our operating revenue, and jobs overall.
Hans Hansson | July 15, 2017
San Francisco’s Mayor, Ed Lee, just announced a $10.1 billion city budget, with increased spending to address homelessness. The two-year budget proposal, which includes a $10 billion budget in the second year, will boost services by $30 million each year around homeless services.
Per resident, San Francisco spends more money than any other city in the United States. While the budget was announced, real estate assessment figures showed that property tax revenue will increase by 7.4 percent, due to higher real estate sales transactions paired with higher real estate values.
The city is over six months to a year behind in actual reassessments of properties that have sold. Therefore, the actual gain will be much higher when the city finalizes new reassessments.
San Francisco is experiencing an unprecedented boom in new income due to increased property values and will continue to do so over for the next two years at least, until all reassessments are complete. Given we are spending the most per resident in the country and given our unprecedented growth in income, are we as residents getting our money’s worth?
The Board of Supervisors struggled with approving this $10.1 billion budget because it still requires major cuts in services to obtain a balanced budget. The city continues to spend more money than it receives. How can this continue to be?
Discretionary available funds are actually at an all-time low. There are less than $50 million available funds to tackle new projects from infrastructure to assisting the homeless. Almost all the $10.1 billion budget is locked into city wages, benefits, and pension dues. The sad fact is that there is little that can be done about it.
Illinois currently has no state budget because the state owes far more in outstanding bills than it has money to pay. The only difference between us and the state of Illinois is that we are experiencing a real estate boom. If this boom did not occur or eventually busts, our situation is going to be exactly the same as Illinois.
It doesn’t take an “eagle’s eye” to question whether we are getting our money’s worth out of this budget. As a native San Franciscan, I see that our streets are dirtier than ever before and are lined with even more homeless people. Countless streets are in desperate need of repair and there is absolutely no discussion amongst city officials to repair our underground infrastructure, namely our 100-year-old plus sewage system along with our electrical and water systems.
So, what is the hold up? First, we have a political problem. We are a one-party town with no political opposition to create a system of checks and balances. Secondly, the very worker’s government, union, and the large corporations that control the city are our politicians, which created these massive financial “giveaways” in terms of wages, benefits and pensions. Therefore, without independent oversight or some political oppositional pressure, there’s no chance that anyone will truly tackle these cost overruns.
Overregulation and inefficiencies are built into the fabric of how we run our government. Again, you don’t need an “eagle’s eye” to see this. Simply go down to San Francisco City Hall and try to pay your taxes, or go to the City Permit department and try to pull a permit for construction. There is no motivation to be efficient because if they were, they simply would not be needed. The sad reality is that we are overstocked with government workers. From the time of Mayor George Moscone to the end of Dianne Feinstein’s term in office as Mayor, the city increased its city worker count by four thousand.
Here is an excerpt from a recent San Francisco Chronicle article on our budget.
“By far the biggest chunk goes to pay city employees. Almost half — $4.7 billion — is spent on the salaries and benefits of 30,626 city employees. How many workers is that? A little more than the population of Burlingame. Enough to provide one worker for every 28 San Francisco residents. Enough to fill three-quarters of the seats at AT&T Park, which — considering the way the Giants are playing — soon might be a great turnout.
The average San Francisco worker makes $108,774 in salary and $49,864 in benefits, including medical, dental and vision care and pension contributions. An income of $108,774 is just over 150 percent of the median salary in San Francisco.
Of course, San Francisco city salaries vary widely. A starting custodian makes $49,270, and a starting junior typist makes $44,798. That’s far less than the city’s top dogs, including the mayor ($302,400), fire chief ($311,194) and the police chief ($316,732). No wonder acting Police Chief Toney Chaplin wants the job full time.”
So, a city worker makes over 150 percent more than the average worker in the city? Yet, is the efficiency there? If not, can you reorganize these departments and can you create some mechanisms that tout servicing the citizens of the city first before worrying about job retention?
There is no way to fix this system if the politicians are controlled by the very workers and special interests that benefit from this budget.
Illinois is a very sad example that can easily happen here. We need government leaders with a backbone to see what is coming and find out a way to fix it before it’s too late.
Hans Hansson | June 19, 2017
Asking our government to be proactive may seem like a long shot, but the City leaders across the country need to understand the impact of the changing retail landscape and start to plan ahead for their communities.
Retail buildings generate the highest tax base for cities that rely on property taxes. They also generate the most sales tax and gross receipts tax revenue. Retail is the largest supporting anchor to any city’s revitalization plans and without it, there is nothing to draw people to continue to visit, live, or support any other businesses in the city.
A revolution is taking place and the effects are becoming more noticeable by the day. Retail giants like Amazon have clearly become the first choice for purchasing almost anything at the determent of brick-and-mortar stores. Sears and JC Penny’s are on their last leg in the retail world, while Macy’s and Nordstrom are not far behind. The days of the large department stores are coming to an end and big box retailers could be next.
Target and Wal-Mart are also clearly seeing online competition take its toll on their bottom line, but still strive to make changes in their offerings to adapt to the ecommerce world. Both retailers have been testing online food ordering this year as a way to stay in the game. Food is still one of the least underdeveloped areas for e-commerce.
At the recent ICSC convention in Vegas, it’s apparent that the majority of shopping centers throughout the US in the next 15-years will be closed. Many shopping centers have already converted to large-scale food courts. However, food retail is also feeling the effect of the changing eating habits of the millennial. Customers under the age of 35 are no longer interested in high-end, sit-down restaurants, nor are they interested in the fast food chains like Applebee’s or Buffalo Wild Wings. Both are struggling to compete with the likes of Chipotle and Panera Breads, which are expanding while the rest of the competition are shutting down. Customers in this age group are more likely to order takeout or cook at home to eat.
This has already had a rippling effect particularly in shopping centers that have food chain anchors. Shopping centers like The Westfield Mall in San Francisco have seen the majority of surrounding high-end restaurants close while fast food joints like Panda Express have seen record numbers since they opened in the same mall.
Most shopping centers rely on anchors like Panda Express to feed foot traffic and sales to the smaller surrounding shops, who pay true market-rate rents to be there. anchor stores typically pay little to no rent since they help draw the bulk of customer traffic. As large anchors begin to fail, the entire shopping center will struggle, unless they can find an anchor replacement.
The challenge to communities is what to do with retail zoned buildings that fail. Zoning laws are next to impossible to change quickly and in a lot of cities restrictions on types of retail, changes to other uses such as office, medical, residential are also restricted.
In San Francisco, a brand-new shopping center opened its doors recently, located on the 900 block of Market Street. It’s the biggest and most ambitious retail development in San Francisco since the Westfield shopping center and cost $150 million to build.
The center was built to compete with the Westfield shopping center, located down the street, but due to the changing retail market, the building has been unable to secure tenants who are willing to pay the necessary rent to make the costs of the project economically viable.
Interestingly, this project was originally built as retail as the Kress department store. When the urban market retail began to lose favor over the new regional suburb of shopping centers, it closed for a number of years. A developer in the early 1980’s eventually converted the building to ground floor retail and offices above successfully. But during the down turn of 2009, it fell on hard times until the current developer bought it and converted it to retail when market street booming again with customers.
The reality is that this building should once again become an office building. The floor plates lend itself well to support the types of office space that tech firms like Airbnb and Facebook are looking for in the city. Yet, to convert the building back to office space (if it would even get approved) would take at least two years through the planning department. This would mean two years of a vacant building in an area that has been posed to seen massive changes with the added residential development planned all around this building.
City officials and developers need to wake up fast to these rapid changes and begin determining what steps can be taken and what product type should be supported in these ever-changing times. The good news is that buildings are still needed and will always be needed. But the bad news is that government leaders lead from behind and not from the front. By doing so, this could lead to the next real great economic collapse.
Hans Hansson | March 28, 2017
Amazon continues to take center stage in retail thanks to a variety of things they've done right– great customer service, competitive pricing, unbeatable product mix, reliable user reviews and support, and the gold standard Prime program offering member discounts, same-day delivery, and vast entertainment options, to name a few.
Amazon is now expanding their services again to include delivery by drones. Though drones are being tested in the more rural areas, Amazon intends to use drones in urban hot spots across the U.S. In addition, Amazon is also opening up brick-and-mortar stores that will feature groceries and house products for online sale orders.
Amazon's goal is to eliminate the same-day purchase and delivery challenges that plague all online retailers, while providing the brick-and-mortar stores consumers still want. Searches for "locations near me" are on the upswing, indicating that consumers still want "hands on" before they buy. Many consumers still need the "touch and feel" of a product to see, touch, feel and/or try on before deciding to purchase. Brick-mortars will not only create equality in the market, but also give Amazon a competitive advantage.
Competing retailers aren't sitting on the sidelines, either. Companies like Nordstrom and Pet Smart are considering new ways to enhance their brick-and-mortar stores that will work in conjunction with consumers' online purchases, creating a designated pickup area for online orders in stores. Nordstrom is also considering real estate with 3,000-5,000 square feet so they can advertise new arrivals while also providing a pickup facility for online sales.
In a recent real estate conference I attended, a guest speaker stated that 80 percent of shopping centers in the United States will be closed in the next 15 years. Convenience and diversity aren't enough for shopping centers to survive today's consumer demands.
Millennial consumers are becoming not only the driving force, but leading as the majority generation in shopping. The baby boomers with money have all the clothes they need and all the tech gadgets they can use. They are not shopping for work or play like they used to. The Millennial consumer is more interested in dining out, and not at traditional restaurants. Millennials prefer to eat where they can play– at dining venues that include live music, movies, theatrical performances– the list goes on. Retailers will need to pay special attention to Millennials, who will continue to shift and morph the retail landscape.
The other challenge for retailers is that Millennials are always on the move. A report by Nielsen suggests 25% of Millennials plan to live in the same area they live in now over the next five years. Meaning, 75% of up-and-coming spenders plan to relocate, mainly to large cities and college towns. Therefore, retailers and manufacturers will need to invest in these rapidly growing cities that have less stability in a long-term market. In turn, overall costs will outweigh the uncertainty.
A unique consumer experience will be the key to separate brick-and-mortars from online retailers. Today's consumers want something different. Retailers that mirror another are going to have trouble, unless they create a unique selling strategy within their brand. This will not be easy or cheap. Gap Inc. once struggled to meet the necessary changes in the market but adapted by creating different brands (like Old Navy, Banana Republic, and Athleta) under the Gap umbrella to provide consumers with more options and expand their buyer pool.
Online retailers also have their challenges. Many economists believe that online sales will slow down to less than five percent growth in the next couple of years. This forecast may be why online retailers like Amazon are looking for ways to diversify their offerings. The drone strategy carries many risks, including the possibility of being rejected by local communities who won't accept drones flying around their town.
Companies like Nordstrom can play big and have the resources to compete if they can simply slow down online sales of competitors to single digits–they will then in fact have the upper hand.
Hans Hansson | January 31, 2017
In 1981, President Reagan took office on a program of heavy domestic spending and fixing international trade disparities that were threatening American jobs. The economic problems of that time were very different. Interest rates were in the high teens, unemployment was in the double digits, and we were marred in a recession.
Today, we have historically low interest rates and unemployment rates. However, we also have the largest growing gap in our country between the rich and poor, with a quickly dwindling middle class.
President Reagan began with tax cuts which emphasized development through accelerated depreciation. Thus, commercial real estate projects of all types began to take place throughout the country. The idea was, "If you build it, they would come." In other words, if you spend money on development, then you will create jobs through the development process.
He also threatened tariffs on foreign automakers that were flooding the US with automobiles while killing American jobs in Detroit. To maintain business at home, Reagan put his foot down saying that they had to either build cars here in the US, or be willing to face heavy tariffs. This lead to the largest expansion of automotive growth, not in Detroit, but in states like Tennessee.
Coincidentally, the Chinese followed this same strategy to a whole different level, building out whole cities from scratch, but with no tenant or industry in mind to support them. Despite odds, this strategy worked to successfully accelerate China's economic growth.
Eventually such a program would be hard to sustain. And politically, the desire to have government join in on these domestic successes usually kills this kind of cycle. Case in point, as the economy grew at unprecedented rate in 1986 Congress passed a revised tax reform bill that essentially took away all the benefits to promote domestic growth and by 1991, we were back in a major recession.
Today, President Trump states that he wants to improve the lives of the middle class by promoting domestic job growth. "We will follow two simple rules: buy American and hire American," Trump said during his inauguration speech.
Just as we saw under President Reagan. We will likely see major tax cuts and threats of heavy tariffs. The intent would be to encourage US businesses to manufacture here at home and bring back American companies who are currently manufacturing overseas. Already we see GM, Chrysler, Ford, Apple and Amazon already announcing plans to either move some manufacturing back to the US, or keep existing plants here that were scheduled to move overseas.
How will "Made in the USA" efforts effect commercial real estate?
It should create an explosion of growth. Every foreign company that decides to manufacture here to keep US business will need offices, warehouses, and manufacturing facilities. We should see office growth in the large seaboard states, while manufacturing and warehouse space grow through the core of the country. Already states like Kansas are seeking spec warehouse development - which has been unheard of since World War II. We also may see a spur in college education as Americans entering the job market will need to be specially trained to in these fields.
Like anything, there of course will be potential pitfalls. With our current low employment rate, this means that as better jobs become available, we need to count on not just the unemployed but also the underemployed job markets.
Already we see both big cities and rural areas employers offering lower paying customer service work and not finding employees to fill positions. Everyone from Wal-Mart to McDonalds will be struggling to find help, which means that we could see more empty stores and a consolidation of these services.
If history repeats itself, then domestic spending could work. For how long? That will depend on whether congress continues to buy in.
Hans Hansson | January 4, 2017
On the heels of the recent tragic Oakland fire, the San Francisco Board of Supervisors is working to protect our artist community by preventing enforced building code inspections in an effort to avoid artist displacement and to protect similar use of buildings.
San Francisco needs to protect our artist community who have been struggling to pay the sky-high rents and with limited living space options. However, if we fail to enforce building codes and inspections, we will increase the potential risk of causing a similar tragedy to occur in San Francisco. It was confirmed recently that Oakland city officials revealed no building code enforcement inspector had been inside the warehouse that caught fire in at least 30 years– imagine the danger we will dismiss by preventing annual building inspections in our city.
The reality is that most of our city's artist collective often times do not practice safe building code compliance. They habitually pack premises with people over-occupancy, using high-voltage entertainment systems, hosting not only unpermitted/illegal living quarters, but large concerts, raves, and other mass events.
Furthermore, there are state codes that our local officials are required to enforce. To arbitrarily choose not to enforce certain codes over others is against state law.
It's also important that we consider the fair factor. If we don't enforce codes and zoning laws on artists, then why is the city going to enforce zoning laws of tech tenants who are often using illegally zoned buildings in properties that they had earned legal building permits? What about zoning issues that effect retailers who have to go through an extensive variance process in order to secure their new storefront?
What about homeless housing? Buildings such as the old Laguna Honda Hospital could house hundreds of homeless people, but because the building is not seismic and does not meet today's code compliance, it's legally uninhabitable.
The underlining issue here is building usability. It's one thing to allow building owners to rent properties to anyone, regardless of use, safety and code compliance. But to allow a specific group of individuals to bend rules in order to prevent its demise is an issue.
The city has set up codes and regulations that all building owners need to comply with in order to carry out safety, a balance in building use, and a positive impact on neighborhoods. The city cannot simply identify one group and then somehow say that these rules and regulations to not apply to another group. It's not only unfair– it's illegal.
Hans Hansson | November 30, 2016
Dear San Francisco Mayor Ed Lee,
Several years ago, one of our citizens and small business owner, Juliet Pries, had an idea to open a "prohibition style" ice cream parlor and soda bar on Cole Street in San Francisco. She secured the location for her new store, only to spend nearly two years earning the necessary permits to legally open. Through the City's Planning Department, the process for her to open her doors for business took so long that she actually took measures with the City to create a streamlined process and help small businesses open their doors sooner.
As you may already be aware, the process to change a space requires a considerable amount of upfront costs, including architects, consultants, attorneys– not to mention the time and effort it takes to secure the necessary support of the local community in order to successfully open a new store. In addition to these typical obstacles, business owners are expected to pay landlords the respective rent before business is in full swing, further challenging owners financially with having to sign a lease and make rent payments without the guarantee that they will even get approved.
In the instance of The Ice Cream Bar on Cole, the commercial space was converted from non-food use to a food use place. Although this is considered a legal use for the property, it still required what is called a "variance" so that the impact of this switch is gauged through the application process and public support. Today, San Francisco is so backlogged with these types of applications that the process easily takes six months or longer to complete.
Luckily, The Ice Cream Bar was able to open its doors and has since experienced incredible support from the Cole Valley community.
I've had the pleasure to know Juliet and see her business' success. I can say without a doubt that she perfectly eligible to expand her business into other locations, although she is currently not thinking about expanding.
San Francisco's Castro district is quickly changing due to formula retail restrictions that have been set in place. Formula retailers are establishments with more than 11 locations worldwide and standardized features or a recognizable appearance. The restrictions have made it extremely difficult for businesses to open on Castro Street.
The public review process is very challenging for business owners. It comes at a tremendous cost and is more complicated than a simple variance. As a result, vacancies have heavily increased on Castro street.
In support of small businesses, particularly in the Castro, Supervisor Scott Weiner encouraged the opening of ice cream stores back on Castro, where ice cream stores had disappeared over the years. About a year ago, a local landlord had approached my friend Juliet with a Castro location in mind, which he knew would be well supported by both Supervisor Weiner and neighborhood groups.
At the time, Juliet was confident that with the city would provide a quick permit process for businesses like hers and she believed she would be able to move in hassle-free. Unfortunately, that did not happen.
I had happened to be in the neighborhood when I saw Juliet in front of her new store reviewing her plans. She told me she was expecting to be open by the fall in 2015. Months later, I saw the space was still vacant and no construction had taken place. I was disappointed to see that she had still not opened and inquired about the delay. She informed me that PG&E took over 11 months to upgrade the electrical service, which of course without it, she could not secure a final occupancy permit.
This story is one of many that I experience as a commercial real estate broker in San Francisco. It speaks to the overly regulated governmental environment that destroys business opportunities in favor of public interest.
There is no real reason why the City's Permit Department and Planning Departments take months to make concrete decisions. Consequently, vacancy rates are continuing to climb. On Union Street today, one of the most popular neighborhoods of retail blocks, there are a total of 18 commercial vacancies. On Geary Boulevard, there are over 30 vacancies. These vacancies have a direct effect on the surrounding businesses and cultivate a hub for homeless.
I ask you, Mayor Ed Lee, and the Board of Supervisors to please create a proactive program that will hire proficient people to streamline the process for all construction and occupancy permits. No permits of any kind should take more than 30 to 45 days to complete, including the public hearings. Our great city should not hinder growth, but assist it. Please step up to resolve this problem.
Hans Hansson | November 11, 2016
For those of you way too young to remember the Bewitched television series from the 1960's and 70's, each week we watched scenes of Darrin Stevens working out of his advertising office in New York.
Darrin's office included two or three exterior windows, a very large desk, a large cabinet for storage, a decorative throw rug over wall-to-wall carpeting, and more importantly– a bar. When he would leave his office, he had a secretary and her desk directly outside of his door. His boss had an even larger office that included sofas, a large conference table, and of course– a bar. This was a typical professional office of the 1960's through the 70's.
With the introduction of personal computers in the 1980's, we saw office sizes shrink, drinking while working became frowned upon, the office bar was completely eliminated, and the private secretary became a secretary for everyone– serving multiple executives instead of one.
In the late 90's and early 2000's, the "open plan" office grew popular and we saw a decreased need for private offices, with the exception of top executives of course. In sales, the top producers were rewarded with private offices, while the rest of the team was pushed into open bullpens.
Today's office space is nothing like the past. Offices are more of a combination of home and sweat shops, rather than Darren Steven's 1960's advertising agency. Back in the 1960's, the average per square foot allocation per employee was over 225 square feet per person. Today, the average is 125 square feet down from 200 just three years ago.
Top office designers suggest that offices today have to compete with the flexibility offered to all employees at most businesses, and therefore offices need to simulate homes, rather than offices. Larger offices include full services for their employees including all day catering, personal training at their onsite gym, transportation to and from work, and even offers to have your car serviced while you work.
During a recent Gensler Architectural presentation, I learned that some offices need to include facilities for pet care, child daycare, and even senior adult daycare. It's become a benchmark to have businesses take care of all employees' personal obligations off the table in favor of having workers continue to work.
The other major shift that came into play is the use of the smartphone. With phone calls being replaced with texting and emails to conduct business, offices do not have to be as insulated for sound as they once did before.
In fact, the quietness of an office, particularly a sales office, is no longer a factor. With built-in music speakers in the walls, and television monitors mounted on walls throughout an office, there is also less need for private office space and an increased need for sofas and communal lounge areas.
Today, private executive offices are practically extinct, as executives are now taking seats in the open area with all other employees in order to create a more collaborative work environment and a utilitarian office.
It's way too early to tell how these new office environments will play out. With tech firms, this has been the norm going back to the Dot.com days of the late 1990's. However, for conventional businesses, this is a major shakeup and its long-term success will take time to measure.
Hans Hansson | October 3, 2016
When my wife and I bought our first home in San Francisco for $138,000 in 1978, we were required to put 25 percent down. We were so excited to get a 30-year amortized loan at 7.5 percent. For many years after, interest rates on home loans only varied slightly until the crash of interest rates, which hit following the economic crisis of 2007.
Since that time, we've had historical low rates which have led to higher real estate prices. As mortgages have become more affordable, this has allowed the government to finance their debt at lower costs and fuel the stock market boom as an alternative to fixed rate investments, which are also locked in at historically lower rates.
Lower interest rates have injured the elderly who are on fixed incomes. Baby boomers are securing riskier investments in order to achieve the necessary returns to fulfill their retirement needs. Social security payments haven't increased in years and it's starting to take a toll on the growing population of older Americans.
So, will interest rates eventually increase? Conventional belief is that it will. However, it would increase in such small increments that it would severely impact growth, but on the flip side it would at least offer some profitable gains to savers and investors.
American cities and states remain in crisis over the ever-growing pension fund shortfalls and the continued bloated government overspending citizen's tax dollars. San Francisco is one of the richest cities in the United States. The city also has increased its budget to over $9.6 billion in 2016, yet has still has around a $100 million shortfall. The state of California is in a serious financial crisis. In just a few years, the state will experience tremendous hardship with the slightest turn in the economy and paying off state debt with higher interest rates.
But let's take a look at an entirely different scenario. Let's say interest rates over the next couple of years take a dramatic increase, back to a five to seven percent range, which historically was considered the stable rate for decades. This scenario would cause increased costs in order to carry out real estate investments, which in turn would have a direct negative effect on values. Doubling interest rates would severely hurt all government entities – from local to federal.
It's clear that pushing interest rates to that level would be economic suicide. However, if they don't raise interest rates, a large portion of our population will not meet economic objectives. In turn, this would force many baby boomers to continue to work past the average retirement age and create more pressure on the overall employment front.
Whichever presidential candidate wins the election, the drastic changes that are about to take place within the next year will cause an upswing and accelerate increased interest rates. Either way, we are going to have another bumpy road.