Back to Articles

Articles

November 29, 2017

Crane Watch: West Coast Construction Boom Continues

A look at development in three key markets: Seattle, San Francisco and Los Angeles

The West Coast undeniably features some of the hottest commercial real estate markets. A near perfect series of economic and technology storms have driven record growth, increased investment and strong market fundamentals. It has all added up to fuel development of a wide range of projects from high-rise office, multifamily, retail and industrial product in markets such as Seattle, the Bay Area, Southern California and even in San Diego. Driving through these market’s urban cores, it is easy to see the evidence in the form of construction cranes that are erecting skyline-altering towers.

Robust growth up and down the West Coast has ensued, and given the urgency to move forward while markets are ripe and the record levels of available capital, the result is often too much money chasing too few deals. Developers and investors are keeping a close eye on demand, and so far absorption levels far outpace new product deliveries.

A closer examination of key West Coast markets reveals a number of interesting trends, as well as projects worth exploring.

First, let’s take a look at Seattle and the Puget Sound. Seattle is one of the hottest CRE markets in the United States. It earned the title of Biggest Company Town in America, a position it achieved riding the explosive growth of Amazon, and it is enjoying an unprecedented construction boom, reflected in it earning the crown of Crane Capital of America.

The Emerald City had 58 construction cranes on the city skyline, roughly 60% more than any other city in the U.S. Los Angeles was ranked No. 2 with 36 cranes, followed by Denver, Chicago and Portland, according to a study by Rider Levett Bucknall. Seattle’s crane count is more than double of San Francisco or Washington, D.C., and three times as many as New York. The Seattle crane count isn’t expected to wane any time soon, either. There are 50 major projects slated to commence construction this year, and an additional 99 developments in the pipeline.

Top Projects in Seattle

PwC’s Emerging Trends in Real Estate report notes Seattle accounts for half of all new downtown office buildings in the nation, while it was one of eight regions that accounted for half of all suburban office buildings constructed this year.

It would be challenging to detail all that construction activity in Seattle, so let’s take a look at a few of the more compelling developments.

First off, Crescent Heights has proposed 4/C, a 100-story tower encompassing 1,020 residential units, 100 hotel rooms on top of 20,000 square feet of retail and 85,000 square feet of office space at 701 4th Ave. The sheer audacity of building a tower of that height is nearly rivaled by Urban Visions’ proposed 60-story 888 Tower will have more than one million square feet of office space and 80,000 square feet of retail space at 816 2nd Ave.

A second grouping of similar sized projects include the $600-million 1.7-million-square-foot Rainier Square, Wright Runstad & Co.’s proposed 59-story tower with 722,000 square feet of office, which has been claimed by Amazon, 200 high-end apartments, and a 12-story, 163-room hotel at 1301 Fifth Ave. F5 Tower is a 44-story tower that F5 Networks has claimed the entire 516,000 square feet of available office space, which also includes a 189-room SLS Seattle luxury hotel. Developer Daniels Real Estate delivered the $400-million project this year. Stanford Hotels Group has proposed a 50-story building, including a 209-room hotel and 236 apartment units at 1903 5th Ave. R.C. Hedreen Co. is developing a 45-story, 1,260-room Hyatt Regency hotel at 808 Howell St. that’s slated to deliver in 2018.

Bay Area Projects

Shifting southward to the Bay Area, one finds a market that’s largely been driven by an insatiable need to find space for tech companies and their employees. The range of new development in the city has included high-rise office and multifamily projects, while activity in the Silicon Valley has centered on new office campuses for the likes of tech giants such as Apple, Facebook and Google, and redevelopment has been a primary focus in the East Bay, especially in Oakland.

The most compelling development in San Francisco perhaps is Boston Properties’ and Hines’ $450-million Salesforce Tower at 415 Mission St. The 61-story, 1.5-million-square-foot office project is close to delivering in 2017 fully pre-leased with tenants including Salesforce, which is leasing about 881,000 square feet, WeWork, Accenture and Bain & Co.

Another key project in San Francisco is China Oceanwide Holdings’ Oceanwide Center, the market’s second tallest tower. Under construction at the corner of First and Mission St., the more than $1.6-billion project encompasses 2.1 million square feet in two mixed-use office and residential towers, as well as a 171-room Waldorf Astoria hotel and residences.

Jay Paul’s 181 Fremont is a $640-million, 70-story tower with 435,000 square feet of office space and 67 residential units. Menlo Park-based social media company Facebook claimed the entire building in what was San Francisco’s largest office lease in three years. The mixed-use development is slated to deliver in H1 2018.

Kilroy Realty Company’s The Exchange on 16th, is a $570-million, 750,000 square-foot development in San Francisco’s Mission Bay neighborhood. The four-building property is currently under construction. Dropbox signed a lease for the entire 736,000 square feet office portion in a deal that qualifies as the largest single Class A commercial transaction ever completed in San Francisco.

Farther south in Cupertino, the 2.8-million-square-foot Apple Park “spaceship” campus was completed in April 2017 and some 12,000 Apple employees began moving in. But that isn’t the only tech firm to add to its corporate real estate footprint. Google village is taking shape in downtown San Jose, where the city is in negotiations to sell 16 government- and city-owned land parcels to the tech giant. Eventually, they could become part of a massive six- to eight-million-square-foot tech campus and transit-oriented village near Diridon Station and SAP Center.

Los Angeles

Downtown Los Angeles (DTLA) is experiencing a construction boom of epic proportions. Since 2010, CoStar reports there’s been 42 developments of at least 50,000 square feet delivered in the urban core, with another 37 large projects under construction. The activity has been fueled by foreign investment and a newfound discovery that it is cool, fashionable and hip to call DTLA home, whether for work or to live. DTLA has been transformed from a sleepy, often dangerous or deserted city center, into one filled with lofts, restaurants and art galleries – and people.

The latest round of development in DTLA includes the West’s tallest skyscraper, Wilshire Grand Center, a 1,100-foot-tall, $1.35-billion skyscraper that opened this year. Hanjin International Corp.’s 73-story building includes 2.1-million square feet with an 889-room InterContinental hotel, 365,141 square feet of office space and 45,100 square feet of retail and restaurant space. Wilshire Grand Center is the the first new DTLA project with office space completed since 1992.

Greenland USA is developing the $1-billion Metropolis, a property that will feature three residential towers, a boutique hotel and a curated retail center planned for completion in phases through 2018. Hotel Indigo is the first component to open at the 6.3-acre mixed-use complex, which also includes additional towers ranging from 38 to 56 stories, and will house 1,500 condominiums and 75,000 square feet of retail.

Another marquee South Park project from a Chinese builder is the $1-billion Oceanwide Plaza, being built across from Staples Center by Beijing-based Oceanwide Holdings. Slated to be completed in 2019, the development will include 504 condos and 184 hotel rooms in three towers. There will also be 166,000 square feet of shops and restaurants and a massive LED screen wrapping the west side of the project overlooking Figueroa Street. It was Oceanwide’s first investment outside of China.

Though the development boom up and down the West Coast is remarkable for its velocity and depth, given the length of the current cycle, some savvy investors are adopting defensive strategies to prepare for a potential downtrend. That means focusing on projects that can generate cash flow or exploring value-add or redevelopment plays. Regardless of the timing, it is wise to keep a careful eye on overbuilding, adopt measures to weather leaner times, and set up for the next cycle.