Construction Around Bay Area Surges

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Availability of public transit is more important then ever for a commercial project to succeed, Rapp agreed. Young tech workers want a San Francisco home address to go along with a Silicon Valley paycheck. Cars stopping at intersections near the Palo Alto downtown Caltrain station have long waits for pedestrians to cross, he noted, and the region has streams of privately owned buses to take commuting workers to the campuses of Google and other tech companies.

The investments in large-scale public projects such as the Transbay Transit Center in San Francisco and quasi-public projects such as the new 49ers football stadium in Santa Clara and the Earthquakes’ soccer stadium in San Jose are likely to fuel more development still. “Whether it is infrastructure in the form of transportation or creating a convention center or sports team that’s attracting entertainment to a place, all those things drive capital investment,” said Mike Straneva, Americas real estate sector leader for Ernst & Young. He cited San Francisco’s AT&T Park as one good example. “That lit up the whole downtown. There was more shopping, more everything. People wanted to go. I think you are going to see the same thing with the new 49ers stadium. I think the Caltrain electrification will do the same thing.”

Not all public projects have the same sort of impact on development, though. A commuter rail station’s impact is likely to be limited to whatever land is within walking distance, while a stadium can have a regional impact.

But some places, and San Francisco is one, have become brands in and of themselves. Any major investment helps the entire brand. “When you put major dollars into an area, it elevates it in people’s eyes,” Straneva said. “Everything is about eyes. How many pairs of eyes will be there to shop, to dine, and in turn, to live.”

And while the Bay Area is notorious for high cost and bureaucratic complexity, Straneva said, when a developer does break through, it’s tough for competitors to match. That helps explain why Emerging Trends, a report from the Urban Land Institute, ranked San Francisco as a top region for real estate investment and development across all property types this year, citing a strong tech market where workers are leading a structural change away from suburban homes and toward downtown.

Looking ahead, Stanford University alone has about 1.5 million square feet in plan review in Redwood City, comprising 13 buildings and four parking garages. Menlo Park has approved a general plan amendment and rezoning for nearly 700,000 square feet of offices, a 235-room hotel, and various commercial buildings like fitness centers and restaurants on two sites near the U.S. 101 interchange at Marsh Road. Also in Menlo Park, SRI International has proposed a phased 25-year modernization of its campus on Ravenswood Avenue.

Silicon Valley’s Golden Triangle, bracketed by U.S. 101, U.S. 880 and state Highway 237, is gaining momentum. Besides the 49ers stadium, two new corporate campuses—680,000 square feet for Samsung Semiconductor Inc. and a million square feet for Nvidia Corp.—headline revival. Developers including Southern California’s Irvine Co., San Francisco’s Jay Paul Co. and Legacy Partners Commercial are remaking Highway 237 with Class A offices for companies such as Amazon.com’s Lab126, Microsoft Corp., Motorola Mobility (now Google), Polycom Inc. and Flextronics. In recent months, Trammel Crow Co. bought 57 acres and South Bay Development Co. acquired 30 acres from Cisco Systems Inc. for additional office and research buildings along Highway 237.

Nearby, developers are remaking and modernizing hundreds of thousands of square feet of existing research and development space along North San Jose’s Orchard Parkway. Lowe Enterprises and Five-Mile Capital Partners are laying the groundwork for a 2.8 million-square-foot, master-planned development in the same vicinity. So is Ellis Partners, which is pursuing 660,000 square feet of new office and research development at Orchard Parkway and Atmel Way.

Can the area sustain this construction boom? Very likely, Straneva said: “The big thing that you have to realize is that real estate is a lagging indicator.” Commercial real estate markets also don’t move in unison. Thriving tech companies create new jobs, so demand for apartments and housing usually comes first. That spurs retail, which in turn increases the need for warehouse and industrial space.

Around the country, some major metropolitan areas are seeing strength in some sectors. Office demand is up in pockets around Washington, D.C., and Texas has good growth in jobs and multifamily housing. But only the Bay Area is firing on all cylinders.

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Photography by Laura Kudritzki

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