San Francisco, CA – November 7, 2014 – Ken Rosen, Chairman of Rosen Consulting Group, a real estate market research firm, and Chairman of the Fisher Center for Real Estate and Urban Economics, delivered a fast paced, analytical and at times, light hearted speech this past Wednesday, at San Francisco’s Four Seasons Hotel.
In attendance were nearly 500 people, including Joe Cook, Cushman & Wakefield’s COO, U.S. Markets, John Cushman, III, Co-Chairman of Cushman & Wakefield’s Board and a crowd of primarily commercial real estate professionals from all corners of Northern California. Before introducing Rosen, Joe Cook began the breakfast meeting with a warm welcome and a brief introduction. Cook spoke of the “unprecedented velocity of growth we are currently experiencing in the Bay Area.” The market is “red hot and on fire,” said Cook, who has been with Cushman & Wakefield for over two decades.
During the 90 minute presentation, Rosen, whose pedigree includes a PhD in Economics from MIT, spoke on a number of different economic and real estate topics including unemployment rates across different educational and age levels, the improving US Budget deficit, and a decline in oil prices, low interest rates and the increasingly confident American consumer.
In speaking about San Francisco and the Bay Area’s economy, Ken addressed the question of whether this is a bubble or not. Today’s technology expansion, he mentioned, is much more broad-based than the previous “tech boom” during the late 90s. Today’s firms have real business- and consumer-based products across many different segments – whether social media, cloud, retail or health care. What is exciting is that there are industries at the cusp of technological change – including education that will certainly be greatly affected by electronic distribution of content. San Francisco and the Bay Area will be at the forefront of all of these new advances.
He also feels that there is no doubt that there will be some start-ups and mature companies that will run into growth difficulties – whether they have previously expanded with private or public funding. This is the natural business cycle and should not cause too much alarm as we are not expecting a sharp downturn such as the implosion seen in 2000.
However, the Berkeley professor believes that there are some risks to all of this good news here in the Bay Area, including rising cost of living and higher costs of doing business. Inflation has been a factor in the Bay Area unlike much of the rest of the country. Housing costs have skyrocketed even as new apartment construction has reached record levels. There is a manifest income/class disparity that must be addressed. Another risk to the continued growth is the threat of “bumping up” against the Prop M caps of office construction within the next few years.
Additionally, the California tax structure can be problematic and should be revisited by the state government – this issue alone could threaten corporate expansion in the Bay Area. All of these issues add up to the possibility that firms will look elsewhere to expand when necessary – essentially searching for locations with a lower cost of living and a lower cost of doing business – as long as the talent either exists in place at those locations or employees in the Bay Area are willing to relocate.
It is likely the current cycle will last another two to three years before an economic correction takes place. However, it will not be severe enough to put the local economy into recession.
Coincidentally, the Los Angeles Clippers also happened to be mingling in the Four Seasons hotel lobby as they were in town for an NBA game against the Warriors. Another coincidence, Randy Koss, Senior Vice President of Real Estate Development for The Sacramento Kings NBA franchise sat next to a former Macerich (a REIT) colleague, Mike Kirner, Cushman & Wakefield’s Senior Marketing Associate.
After hearing the learned professor’s lecture, Koss, who attended the event with Art Fong, Director of Asset Management for Invesco, remarked: “I’ve decided to turn my San Francisco home into a corporate apartment.” Koss is a San Francisco native who recently moved to Sacramento to oversee real estate activities for the Kings on the new Sacramento Kings Arena and surrounding mixed use development for which Cushman & Wakefield’s David Scanlon is spearheading retail leasing efforts.
About Cushman & Wakefield
Cushman & Wakefield advises and represents clients on all aspects of property occupancy and investment. Founded in 1917, it has 250 offices in 60 countries, employing more than 16,000 professionals. It offers a complete range of services to its occupier and investor clients for all property types, including leasing, sales and acquisitions, equity, debt and structured finance, corporate finance and investment banking, appraisal, consulting, corporate services, and property, facilities, project and risk management. A recognized leader in local and global real estate research, the firm publishes its market information and studies online at www.cushmanwakefield.com/knowledge.