July 22, 2016
Spec construction catering to midsized to large tech companies in markets such as Seattle, San Francisco, Silicon Valley, LA and New York shows no signs of slowdown in the office market despite perceptions to the contrary, says Allen Matkins partner Tony Natsis. Tony Natsis
We caught up with Tony (second from left with his family: daughter Marialexa; son Niko; wife Demetra; and son George) after the release of the Allen Matkins/UCLA Economic Forecast to discuss some of the trends identified in the California forecast that have national implications in the office market. The forecast reflected a pessimistic outlook among developers for the next three years.
Strong demand from midsized and larger tech tenants continues despite talk of pullback in venture capital funding. While startups with little operating history will be in trouble, larger, more established firms continue to demand office space in these markets, Tony says. Developers are responding with spec construction catering to the needs of older companies. “Mature firms are still hot,” Tony says.
Increased M&A activity across the nation isn’t as pressing a concern for real estate either, he adds. Microsoft, for example, is probably not consolidating a significant portion of LinkedIn’s real estate footprint after the acquisition. Rather, buyers are mostly leaving the real estate plans of their purchases intact.
Tony isn’t seeing pessimism over the fortunes of the tech economy reverberating in real estate markets as strongly as it did in 2008. While there might be some slowdown and elongation in deal times, he is not expecting a collapse in the real estate market.
He does, however, foresee highly localized legal pressures in the form of municipal taxes and referenda threatening project economics. Calling San Francisco the “toughest city in which to get a project entitled,” Tony says cities that historically have dealt with developers with a heavy hand could dampen development. He singled out the chilling impact of Prop M and gross receipts taxation in San Francisco for real estate firms.
In response to these challenges, Tony says firms that provide critical services to developers have to treat deal speed at a premium, asking the question, “What ways can I figure out how to make the deal happen without everybody having to stay up all night?”