For the second year in a row, the Bay Area ranked as the best market for commercial real estate in the country, according to a report from the Wells Fargo Economics Group.
The report found that the Bay Area’s strong gains in employment, housing inventory and technology sector push the Bay Area far ahead of other markets in terms of increasing value and potential for more growth.
“The San Francisco Bay Area remains the epicenter of many of the most rapidly growing technology sectors, including mobile devices, social media, cloud computing, data analytics and life sciences,” the report states. “Overall job and income growth have significantly outpaced the nation in recent years and the unemployment rate has fallen to its lowest level in nearly six years.”
The report demonstrates the tight relationship between jobs and real estate, pointing to deals like Salesforce.com leasing 714,000 square feet in an office tower under construction. That tower will eventually house thousands of jobs, many of them yet to be created, and Salesforce is just one of numerous tech companies expanding in the Bay Area.
The Wells Fargo report provides detailed analysis of the Bay Area’s submarkets of San Francisco, the Peninsula, Silicon Valley and the East Bay. Here’s a sampling of highlights:
Some industries like financial services are shrinking like in the case of San Francisco-based Charles Schwab & Co. deciding to move 1,000 jobs out of San Francisco to places like Colorado and Texas.
Fortunately, the technology sector is growing much faster than other sectors are retreating.
Tech is booming in San Francisco, but the Bay Area’s true tech capital is still Silicon Valley.
Technology firms have not abandoned the suburbs. Job growth in Silicon Valley remains exceptionally strong. … Technology firms employ about 270,000 workers in the San Jose metropolitan area, which includes Santa Clara and San Benito counties. Total tech employment in the San Jose metropolitan area is 73.4 percent higher than the number employed in the San Francisco metropolitan division.
Still, many tech workers prefer to live elsewhere.
Household employment growth has risen more slowly in South Bay, however, climbing just 3.3 percent over the past year, which implies a significant number of workers are commuting into Silicon Valley from San Francisco, Oakland and other neighboring areas.
Jobs and housing are great here, but transportation connects it all together. You can debate high-speed rail all you want, but turns out strong commuter systems boost the entire region.
A major modernization program is now under way, which will extend service to the Transbay Transit Center being developed in San Francisco’s booming SoMa area and move from diesel-electric locomotives to overhead-electric powered trains by 2019. The growth of the system, which will more firmly connect the major hubs of the Bay’s tech sector, the San Francisco and San Jose airports, and many of the region’s key sports and cultural venues, has become a major driver of residential and commercial development.
Everybody loves a growing economy. Well, not everybody. Growth comes with repercussions.
With employment and population growth exceeding expectations, worries are beginning to surface that the latest boom is showing signs of overheating. Explosive growth in the Bay Area’s creative industries is beginning to crowd out activity in parts of the financial and professional services sector. The boom has also sparked a backlash by some individuals tied to slower growing and lower paying parts of the economy. Home prices, apartment rents and office rents have also increased dramatically, which has significantly increased the cost of living and doing business in the Bay Area. Despite these developments, we still expect the Bay Area to outperform the nation. While costs have increased dramatically over the past year, so has the quality of life.
If any region would be familiar with tech booms and busts, it should be the Bay Area. So when is our bust coming, if at all? Economists expect this cycle to have a smoother landing that the first tech boom.
The dependence on technology has raised concerns about the vulnerability of the Bay Area’s economy to another dot com crash. The prospect has gained increased attention in recent months, which have seen a number of extremely highly valued acquisitions of tech startups and a few disappointing IPOs. While every boom must eventually end, traditional valuation measures are much different than they were during the run-up during the tech bubble in the late 1990s.
Blanca Torres covers East Bay real estate for the San Francisco Business Times.