With Strong Jobs, Office Sector Gets Noticed

SAN JOSE—With 223,000 jobs added last month, May became the 92nd straight month of employment additions, at an unemployment rate dropping to 3.8%. The unemployment rate hasn’t been this low since April 2000. For the first time on record, the number of job openings exceeds the number of people out of work and seeking employment, according to the Bureau of Labor Statistics.

At the end of April, job openings stood at 6.7 million while the number of unemployed sat at 6.3 million. But despite this abnormal condition, employers and the economy have found ways to keep employment expanding at a fast pace.

This has resulted in the Federal Reserve’s difficult balancing act. The strength of the labor market supports the Fed maintaining a hawkish stance, yet it will be cautious not to push short-term rates above the 10-year treasury, for fear of signaling a pending recession, GlobeSt.com learns.

Naturally, this office-using employment is driving down vacancy. During the past 12 months, the professional and business services sector has been expanding at a faster pace than overall employment, driving up office demand, according to Marcus & Millichap research services. The sector added almost 500,000 jobs and grew at 2.5% compared to the national rate of 1.6%. The increased hiring drove down the national office vacancy to 13.8% in the first quarter of this year.

New construction has also been highly concentrated. The top 10 markets for 2018 deliveries account for 56% of the square footage being completed. Furthermore, new supply additions continue to run below the levels of the 2000s, which has helped maintain a declining vacancy rate with demand rising.

It is therefore no surprise that office assets, especially in the South Bay, are getting noticed by investors and lenders alike. One example is the recent sale of Great America Parkway, a 224,522-square-foot office campus located at 2903, 2993 and 5200 Great America Parkway in Santa Clara, CA to an undisclosed buyer. The seller was Newcastle Partners.

The three-building campus features various sized floor plates, abundant window lines and an open layout, which accommodates both full-building users and multi-tenant users. Great America Parkway is within walking distance to the light rail, Santa Clara Convention Center, numerous hotels and Levi’s Stadium. The campus also offers convenient access to Interstates 101, 880 and Highway 237. NKF Capital Markets vice chairman Steven Golubchik and executive managing director Edmund Najera represented the seller in the acquisition.

Another recent sale was of North First Commons, located at 2515, 2525, 2535 and 2545 N. First St. in San Jose. The class-A office campus is comprised of four buildings totaling 250,000 square feet of space and is 100% leased to eBay. The buying group was led by Ocean West Capital Partners and Hana Asset Management Co. Ltd.

NKF Capital Markets’ Golubchik and Najera, along with directors Tim Walling and David Hosler, facilitated the sale of the project. NKF Capital Markets vice chairman Ramsey Daya and executive managing director David Milestone assisted the buyer in acquiring purchase financing.

“The sale of North First Commons is a demonstration of the incredible demand for office product in North San Jose,” said Golubchik. “This demand will continue as more good news hits the market relating to new leasing activity.”

North San Jose has experienced a tremendous amount of leasing momentum as major tech companies continue to expand in the surrounding area. Recently, Google, Apple, Samsung and Microsoft, have each purchased more than 1 million square feet in the area to expand both the corporate presence and operations in North San Jose. With rumors of additional leasing activity, North San Jose could experience more than 2.5 million square feet of absorption in 2018.

Finally, there was a $150 million financing of 1625 Plymouth, a 245,738-square-foot build-to-suit office development located in the North Bayshore submarket of Mountain View, CA. The borrower was Broadreach Capital Partners.

The closing of the fixed-rate permanent loan through New York State Teachers Retirement System coincided with completing the construction of the warm shell and delivering the building to the tenant for the tenant improvement buildout. 1625 Plymouth is a LEED Platinum class-A office building located directly off Highway 101 near the affluent communities of Atherton, Palo Alto, Los Altos, Los Altos Hills, Portola Valley and Woodside. The HFF debt placement team representing the borrower was senior managing director Bruce Ganong and analyst Bercut Smith.