The San Jose CRE market is booming. The Bay Area pipeline is packed with research and development facilities, high-end residential, next-generation retail and innovative mixed-use. These are three big Bay Area trends to watch in 2018.
1. Retail Evolves And Becomes Experiential
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As e-commerce players continue to invest in sophisticated distribution networks, enhance their user experiences and offer a broader variety of goods, conventional brick-and-mortar is seeing its profitability plummet. Traditional retailers need new ways to excite customers.
Rather than reinvent their business models, retailers can add experiential components to complement their core product lines. Elements that provide for entertainment and socialization, like bars, theaters, gaming or recreational areas can get people in the door.
“We’re seeing novel concepts in San Jose like a bar in Nordstrom, a beer garden above a Whole Foods and a bowling alley inside a Bass Pro Shop,” Iron Construction President and CEO Dave Edgar said.
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The good news for retailers who incorporate these attractions is that Americans are spending more on experiences than possessions. While shopping at brick-and-mortar stores has become less essential, it has become more social.
“Bass Pro Shop figured out how to do it the right way,” Edgar said. “Experience is king, and you have to offer something for everyone in a family or group.”
2. East Bay Is Heating Up
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Growing investor and developer interest in the East Bay has precipitated a wave of new development in the historically quiet market, according to Edgar.
“More of our work is coming from the Dublin and Pleasanton area, which is a surprise, but a good surprise,” Edgar said.
High rents elsewhere in the Bay Area have prompted developers to take their ambitious retail, multifamily and life science projects to the East Bay. With a $750M East Bay pipeline, developer Blake|Griggs Properties hopes to establish an employment center by emphasizing transit-oriented mixed-use. Capital that has sat on the sidelines is being used to fund projects that cater to the pent-up demand for more affordable rents across asset classes.
3. Life Science Demand Increases
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The Bay Area has no shortage of brainpower with its major research institutions Stanford, UC Berkeley and UC San Francisco. Life science companies like Roche, Novartis, Bayer Healthcare, Illumina and Merck locate in the Bay Area to recruit from the local talent pools saturated with highly educated candidates.
In 2017, the Mid-Peninsula, Oakland and Mission Bay area's life science employment grew 6.5% year-over-year, according to JLL. The local pipeline has 2.2M SF of facilities under construction, with positive pricing growth in all submarkets ranging from 1.5% to 14.3%.
“Several of the largest life science brands in the world are Iron clients, and we’re continuing to see strong demand for the product,” Edgar said.
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