Freelance
News Service
Construction and Development, 1999
By William Cracraft
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Commercial office space development in San Mateo County is at an unprecedented high, boosted by high rental and occupancy rates. Many commercial developments are being built by existing industries for their own use or for sale and some are being built on speculation by developers for rental.
Max Keech, a principal with Brain Kangas Foulk, a consulting engineer and land planning company based in Redwood City, said there are a half-dozen million square-foot projects he knows of, each destined to house 4000-plus employees. "The development over the last two to three years has all been development by users, like Oracle and Visa," said Keech.
"With the increase in rental rates over the last three years, over the last year or two we have seen speculative space re-enter the market, which has been absent since the late eighties." In the last few years, "there has been literally no speculative space built. Developers are now banking on finding tenants and they are willing to do that because of the potential for profits with the rise in rates," he added.
"It is pretty tough in San Mateo County to get approval, but there are a couple of mega projects that are fueling (the approval process), and some very strong market demand," Keech said. The county is much more friendly towards the users who construct office space for their own expansion. "If you have an Oracle or a Genentech or a Visa that is in the county and is expanding, you want to keep them there."
In addition, the county smiles on companies like Electronic Arts and At Home, with large, highly-paid, professional workforces. "With the huge growth in those business, we try to keep them here. They are the type of clean industries you want in the county. Employees have high disposable income for restaurants, theaters and retail," Keech said.
Many high tech companies have difficulties finding land. "When they find it, they might buy more than they need, entitle it all, hold it for expansion space, or if they determine they don't need it, they have an asset they can sell," Keech said. "Space is so hard to get here it makes them nervous. They like to control their destiny, and if they control facilities they can have some control over their ability to grow," he added. Overall, growth of this magnitude is hard to maintain.
"I think we're going to see a little bit of a slow down, especially in the office side because we do have a lot of speculative space that has been approved," Keech added. "Some of it may not be built, but I don't think we're going to see a lot of new projects over and above what is currently approved being proposed, because there is a high cost of entry on the entitlement side," said Keech.
Market saturation is on the minds of those who fund the building. "We have seen a lot more caution from lenders, (they are requiring) higher equity and they want to see tenants." he added. In addition to commercial development, the San Francisco International Airport master plan calls for construction well into the first decade of the 21st Century including, "a billion and half dollars worth of work being done at the airport on the new International Terminal and parking lots.
The airport is just starting the planning process to add a new runway or get a larger runway separation," said Keech. In other non-commercial construction, the extension of BART from Colma through San Bruno and SFIA to Millbrae will fuel the county economy via employment and corollary private commercial development like restaurants and other retail establishments near the new stations. This strong job growth is bound to lead to traffic congestion.
"I think most new projects bring some new people to the area, not everybody is home grown," said John Hamilton executive vice president of Wilson-Cornerstone Associates of San Mateo and SAMCEDA board member. "I would guess that the county, like a lot of people, is concerned with the shortage of housing and the inadequacies of the transportation infrastructure, both mass transit and the roadways," he said. "I think those issues have been the most discussed and debated, and the most sensitive for years and remain so," he added. That's where SAMCEDA comes in.
"Just the fact that they educate people about the issues I think is really important," said Hamilton. "They do, from time to time, take positions, (but) they don't always have their greatest impact by being the point voice, if you will, but just the fact that they educate us, then we can all put our two cents in to the respective councilman, assemblyman or governor or whoever.
"The process of educating voters, I think is critical, and they do a great job at it," Hamilton said. "They have newsletters and minutes and a variety of public events that quite a few people come to." Via SAMCEDA board member contact, various meetings and informational events, "we become better informed on issues, then we can disseminate it internally to our fellow employees and folks who need to know it outside our company," Hamilton added. "It's really a dissemination of information vehicle."
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