Silicon Valley
The Business of Diversity
By Mark Ritchie
As we crawl on our bellies under barbed wire towards the end of 2008, we thought a look back over the year at what lessons we may have learned would be helpful. 2009 and 2010 at a minimum will be about which businesses in our industry survive and which don’t. By press time, the double entendre title above will hopefully have meaning in our Presidential Election, (my oft self describing quip: “I just look like a Republican”), but what we are referring to specifically is how diversity in your business lines may mean the difference between survival or not.
Without naming names, as is our policy in business and in print, certain real estate service providers seem to have gotten stuck by working only one segment of our business. Be it a developer of one product type only or a brokerage firm specializing in a similarly narrow (or too large?) band, those players seem to have been hit the hardest.
We at Ritchie Commercial have held a long belief in a fairly simple business model that serves a very diverse portfolio of property types — office, retail, industrial and land, representing landlords and tenants and buyers and sellers plus property management services. Seems pretty basic stuff but the truth is the last decade of the real estate boom produced lots of highly specialized firms, many of which took off like a rocket but landed in pieces. “Only Serving The _______ Community” in a mission statement seems like a dangerous idea going forward.
The same may be said for geography, as commercial real estate providers in the great “Sub Prime Belts” ringing the Bay Area also seem to have dropped the farthest. Those with an urban focus have weathered the storm better. There is no more diverse market than an urban core, another tenet of this firm, including much work involving public-private partnerships, the non-profit and arts/cultural community and of course pure public sector work.
We like our commercial suburbs but it sure seems like the future lies in denser and denser cities with next generation transportation infrastructure.
And of course another nod to diversity in this economic correction is that the tilt went East to West from the financial market monopolists in New York versus West to East in the early decade tech bust. Who knew that Silicon Valley this time would hold out the best because and not in spite of the diverse emerging technology sector? (Clean Tech, Green Tech, Bio Tech, etc) “We Make It, They Take It” might be a good rally cry in this Wall Street greed induced downturn.
Third Quarter statistics for the Valley are actually not so bad. R&D absorption is still marginally positive for the year with vacancy near 16% while the pure office market has been harder hit (see paragraph above!) much of it from the Oracle whale swallowing the BEA Jonah, but with overall vacancy less at 13%. Total negative net in office is just over one million feet so far in 2008. Rents are still not plunging (today...) due mostly, in our opinion, to the steady rise of real (not politically spun) inflation from below. A $2.75 rent today feels suspiciously like a $2.25 rent of just a year ago, and there are lots of necessarily high and sticky quoted rents on new office projects.
Downtown San Jose has been hardest hit statistically principally due also to the “BEA Effect” and the new River Park Tower coming on line in 2009. This has pushed Class A to 22% and overall vacancy to near 20%. Tough numbers, but the top five Class A towers are still all over 90% leased.
As for predictions for 2009 we will take the Fifth on that. The macroeconomic factors weigh so heavily that even the most optimistic Valley view, which we often espouse, may get derailed. Suffice it to say that the Bay Area still boasts the smartest, best funded, most creative and hip gathering of workers on the face of planet earth. May still not be enough but we bet that it will.
Celebrating more than 50 years in business, Ritchie Commercial
Real Estate is a second generation, San Jose-based commercial real estate
brokerage firm. With five local offices, it is the only wholly independent
regional firm in the Greater Bay Area. Through an affiliation with the
CORE Network, Ritchie Commercial also offers an additional 1,200 licensed
real estate professionals in all 50 states.
Mark Ritchie can be reached at
mritchie@ritchiecommercial.com
Silicon Valley
The Business of Diversity
As we crawl on our bellies under barbed wire towards the end of 2008, we thought a look back over the year at what lessons we may have learned would be helpful. 2009 and 2010 at a minimum will be about which businesses in our industry survive and which don’t. By press time, the double entendre title above will hopefully have meaning in our Presidential Election, (my oft self describing quip: “I just look like a Republican”), but what we are referring to specifically is how diversity in your business lines may mean the difference between survival or not.
Without naming names, as is our policy in business and in print, certain real estate service providers seem to have gotten stuck by working only one segment of our business. Be it a developer of one product type only or a brokerage firm specializing in a similarly narrow (or too large?) band, those players seem to have been hit the hardest.
We at Ritchie Commercial have held a long belief in a fairly simple business model that serves a very diverse portfolio of property types — office, retail, industrial and land, representing landlords and tenants and buyers and sellers plus property management services. Seems pretty basic stuff but the truth is the last decade of the real estate boom produced lots of highly specialized firms, many of which took off like a rocket but landed in pieces. “Only Serving The _______ Community” in a mission statement seems like a dangerous idea going forward.
The same may be said for geography, as commercial real estate providers in the great “Sub Prime Belts” ringing the Bay Area also seem to have dropped the farthest. Those with an urban focus have weathered the storm better. There is no more diverse market than an urban core, another tenet of this firm, including much work involving public-private partnerships, the non-profit and arts/cultural community and of course pure public sector work.
We like our commercial suburbs but it sure seems like the future lies in denser and denser cities with next generation transportation infrastructure.
And of course another nod to diversity in this economic correction is that the tilt went East to West from the financial market monopolists in New York versus West to East in the early decade tech bust. Who knew that Silicon Valley this time would hold out the best because and not in spite of the diverse emerging technology sector? (Clean Tech, Green Tech, Bio Tech, etc) “We Make It, They Take It” might be a good rally cry in this Wall Street greed induced downturn.
Third Quarter statistics for the Valley are actually not so bad. R&D absorption is still marginally positive for the year with vacancy near 16% while the pure office market has been harder hit (see paragraph above!) much of it from the Oracle whale swallowing the BEA Jonah, but with overall vacancy less at 13%. Total negative net in office is just over one million feet so far in 2008. Rents are still not plunging (today...) due mostly, in our opinion, to the steady rise of real (not politically spun) inflation from below. A $2.75 rent today feels suspiciously like a $2.25 rent of just a year ago, and there are lots of necessarily high and sticky quoted rents on new office projects.
Downtown San Jose has been hardest hit statistically principally due also to the “BEA Effect” and the new River Park Tower coming on line in 2009. This has pushed Class A to 22% and overall vacancy to near 20%. Tough numbers, but the top five Class A towers are still all over 90% leased.
As for predictions for 2009 we will take the Fifth on that. The macroeconomic factors weigh so heavily that even the most optimistic Valley view, which we often espouse, may get derailed. Suffice it to say that the Bay Area still boasts the smartest, best funded, most creative and hip gathering of workers on the face of planet earth. May still not be enough but we bet that it will.
Celebrating more than 50 years in business, Ritchie Commercial
Real Estate is a second generation, San Jose-based commercial real estate
brokerage firm. With five local offices, it is the only wholly independent
regional firm in the Greater Bay Area. Through an affiliation with the
CORE Network, Ritchie Commercial also offers an additional 1,200 licensed
real estate professionals in all 50 states.
Mark Ritchie can be reached at
mritchie@ritchiecommercial.com