What are concerns about a commercial real estate crisis?
A: The goals of a commercial buyer differ from the wants and needs of home buyers. For commercial purchases, investors look almost exclusively at what the numbers tell them. Will the capitalization rate and/or gross rent multiplier (formulas that help determine value) give the buyer the intended results? What are the total rents and expenses? Performing an income and expense analysis helps the investor understand the costs, cash flow, return on investment, debt service costs and potential increase in future revenue generation.
While perhaps not true for the entire country, there is still major demand for commercial purchases in the Bay Area. Commercial loan originators largely expect strong borrowing demand for mortgages this year, although experts are a bit less enthusiastic than they were last year, according to a survey conducted by the Mortgage Brokers Association. Concerns include higher interest rates, rent controls and governmental regulations.
Investors are always looking for solid returns, including many foreign-based buyers who want to invest in the relative stability of the U.S. economy and obtain higher returns than from U.S. Treasury notes. Due to the resurgence of the stock market, more investors have additional funds they can invest in real estate. Our Bay Area communities continue to attract strong demand and encourage investment in local commercial properties. Jill Gumina, Hill & Co. Real Estate, (415)
265-1717, jgumina@hill-co.com. A: According to various sources, San Francisco’s commercial real estate market may be seeing a slowdown in the city’s technology driven economy.
Office subleasing is at the highest level since 2010.
A five-year frenzy for San Francisco office space may be cooling as venture capital investments decline and tech firms slow their hiring from record paces.
The extra space is a warning sign that the growth rate for some companies was unsustainable.
Some startups took more space than they needed in the hopes of expanding later, while others are moving to less expensive areas.
The trend isn’t entirely negative, however. Some companies that leased space in the early stages of the boom can rent it out at a profit, while others may be expanding and moving in to bigger offices, an indicator of growth. Subleasing also opens up more affordable space at a time rents are near record highs — as the spaces on the market for sublease have asking rents about 17 percent below those of regular leases, according to Cushman & Wakefield. Kathleen Daly, Coldwell Banker,
(415) 925-3205, kdaly@cbnorcal.com; Lisa Lange, Coldwell Banker,
(415) 464-3318, lisalange@coldwellbanker.com. A: Barring any sort of catastrophic event, it appears that the San Francisco commercial market will remain robust and become even more relevant on the international circuit.
The influx of overseas money to the Bay Area drives our markets. While everyone is watching what the economics of 2017 shall bring, the Bay Area may not be feeling a downturn in commercial markets simply because so much overseas cash is used for purchasing.
The Bay Area still has the technology industry driving Bay Area real estate in all markets — the commercial leasing and subleasing of space, residential rentals, record breaking commercial sales and astronomical residential sales. The leasing and buying pools are still strong.
Believe it or not, the Bay Area is still considered a bargain compared to some of the other international cities of the world. Even with all of the appreciation in the last few years, both the commercial and residential markets are still performing at a lower cost for purchase in the most desirable worldly markets.
As we all know, what goes up must come down; however, real estate is still a solid investment over time. Jeannie Anderson, Pacific Union Real
Estate, (925) 586-6621, janderson@pacunion.com.