Workday, The Gap Scour East Bay For Large Blocks

By Sharon Simonson

Two gigantic shoes are about to drop in the East Bay leasing market.

Pleasanton-based Workday Inc., which filed documents Aug. 30 announcing its plan to sell stock to the public, is on the prowl for more than 400,000 square feet in its hometown to accommodate existing and anticipated growth.

At the same time, San Francisco-based Gap Inc. is looking to move a significant chunk of its so-called back-office operations such as information technology workers and human resource professionals out of San Francisco.

Both companies are focused on the approximately one million square foot California Corporate Center in Pleasanton (pictured). The property, previously known as the Carr Corporate Center, is owned by RREEF Real Estate and is well more than half vacant, brokers and other landlords in the market said.

Ross Stores Inc., which is a tenant at the corporate center, also is expected to move out at the beginning of 2014 into two neighboring properties with more than 218,000 square feet that it acquired from Cisco Systems Inc. earlier this year.

The transactions’ significance would transcend the dollar-and-cents of the deals, said Edward F. Del Beccaro, managing director for Transwestern in the Greater East Bay. “It shows that major corporate users still regard the Tri-Valley as a suitable location,” he said. “It will absorb a lot of space.”

The Gap’s move in particular could indicate the start of a wave of tenants moving out of San Francisco in the wake of rising rents, he said.

“What some of us are afraid of on the other hand is that companies like Zynga and Yelp have all taken too much space in San Francisco and because Wall Street is not being kind to them, they might give some empty space back, and the market will soften,” Del Beccaro said.

The Tri-Valley office market, which includes Pleasanton, San Ramon, Livermore and Dublin, recorded an 11 percent vacancy rate at midyear on a total inventory of 27.36 million square feet, according to Colliers International.

That was up slightly quarter over quarter but down from nearly 16 percent at the same point the year before. Class A office rents are less than $2 a foot a month including such costs as property taxes and common-area maintenance. That compares to Class A rents in the San Francisco Financial District of approximately $50 a square foot a year, or a little more than $4 a foot a month.

The vacancy at the California Corporate Center is the biggest “hole in the [Tri-Valley] marketplace,” said one broker who asked not to be identified. Between Workday’s need for as much as 450,000 square feet and Gap’s requirement of as much as 300,000 square feet, the campus would be largely refilled. “It is huge,” the source said.

Workday also is considering buying the California Corporate Center in its entirety, sources with direct knowledge of the transaction said. It is also considering staying and expanding at its current location at 6230 Stoneridge Mall Road, where it leases 180,000 square feet in what is the former headquarters of the Charles Schwab & Co. Inc.

The Gap may sign a deal as soon as next week. It wasn’t clear when Workday could commit. A spokeswoman for RREEF said the company had no comment. Leasing brokers working for RREEF did not return calls.

Workday was founded in 2005 and has more than 1,450 employees, according to its offering documents. The company’s workforce has grown by nearly 275 percent in the last three years as its revenue has expanded from $25.2 million to $134.4 million in the fiscal year ended Jan. 31.

It describes itself as “a leading provider of enterprise cloud-based applications for human capital management, payroll, financial management, time tracking, procurement and employee expense management.” Its major competitors include Redwood City-based Oracle Corp. and SAP AG. Its customers include Flextronics International and Four Seasons Hotels.

Citing International Data Corp. estimates, Workday says the global marketplace for enterprise resource management software totaled $39 billion in 2011.

Among the strategies that the company identifies in its offering documents as key to its growth is “leverage[ing] our unique culture.”

“We believe that culture is the foundation for the successful execution of our strategy and, as a result, is a critical requirement for our growth agenda. Since 2008, more than 95 percent of customers that responded to our surveys have given us favorable ratings,” it says in its offering documents.

While the East Bay has been slower to rebound than San Francisco, the Peninsula and Silicon Valley, there are signals that the market is in good recovery. If the California Corporate Center were removed from the calculus, the vacancy rate in the Tri-Valley office market would drop to less than 8 percent, according to Colliers.

San Ramon’s Bishop Ranch with 9 million square feet of offices in 30 buildings has signed a slew of major leases in the last several years including 250,000 square feet each to Robert Half International, Bank of the West and Pacific Gas & Electric, and another 150,000 square feet to GE Global Software.

The largest available block is less than 85,000 square feet, said Ed Hagopian, an executive vice president for Sunset Development Co., the owner and operator of Bishop Ranch. “Our vacancy is under 10 percent, Hagopian said in an email response to a reporter’s query, but “we have plenty of options and an entitlement to build a three-building, 700,000-square-foot office complex.”

Besides less expensive office rents, the East Bay offers a well-educated workforce and less expensive housing at a range of price points. Nearly 50 percent of the population within commuting distance of Bishop Ranch have college degrees or higher, according to a 2011 study by Sedway Consulting. That compares to about 40 percent for the Bay Area as a whole and 30 percent for California as a whole.

PHOTO COURTESY OF ROFO.COM

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