Veteran broker Benjamin Osgood believes temporarily stagnant Bay Area CRE growth is hardly a sign that the region’s bubble is about to burst.

After re-signing Kevin Durant and Stephen Curry, the Golden State Warriors appear poised to go from strong to stronger. According to CRE industry insider Benjamin Osgood, the Bay Area’s second hottest commodity — real estate — is set to do the same.

Osgood, an Executive Vice President at Dunhill Partners West, has spent over a decade in Bay Area CRE. He began his career working on the listing side of some of the region’s most prominent landlords — Legacy Partners, Ellis Partners, McGrath Properties — but he now leverages this background to advocate for tenants, with whom he shares an entrepreneurial spirit dedicated to doing good through business.

As a LEED-accredited broker who specializes in sustainable real estate strategies, Osgood is committed to going the extra mile in order to do right by his clients, whether that means directing them to buildings with lower energy costs or advising them against signing a lease that extends further than their corporate forecasts. Based on insights gleaned from these productive broker-client relationships — and his extensive experience with Bay Area CRE — Osgood is confident that the Bay Area bubble is not going to pop any time soon. We sat down with him to find out why.

The State of Bay Area Commercial Real Estate

While he doesn’t foresee rents plummeting, Osgood is careful to not be overly bullish in his predictions about the Bay Area CRE market, despite outward displays of confidence from the region’s big developers. “It’s in the owner’s best interests to paint a consistently rosy picture of where the market stands,” he says, as the last thing landlords want is for the general consensus to gravitate toward the idea that the market is softening and property values and rents are falling.

In truth, Osgood explains, the local CRE market has more or less plateaued. During the first quarter of 2016, venture capital firms began to “turn off the faucet” by becoming increasingly conservative in their investment strategies. At the time, many Bay Area startups had leased expansive office space into which they planned to expand with the help of then readily available VC funding. As VC money dried up, the region’s sublease market exploded, as companies were suddenly faced with a surplus of expensive space for which they had no use.

It’s critical to note, however, that this newly-robust sublease market remains incredibly competitive. This, says Osgood, is a sign that temporary rent decreases are less a harbinger of a crash than a byproduct of VC conservatism. By the fourth quarter of 2016, companies looking to lease office space had a glut of “plug-and-play” sublease options, most of which were somewhat cheaper than a direct lease since overextended lessees have a much greater incentive to offload their space than an ordinary landlord does.

In order to compete with the booming sublease market, landlords have been forced to come down off their asking rents, which accounts for the leveling-off of Bay Area CRE prices. As Osgood puts it, “Five years ago, an $80 per square foot rental quote meant $85, because eight companies were competing for the space. Today, an $85 per square foot quote means $80. Landlords are trying to maintain high rents, but when push comes to shove, they are going to budge just to get someone in their space and get the cash flowing before 4M square feet of new office hits the market.”

Ultimately, competition for prime commercial real estate in the Bay Area remains high, with multiple would-be tenants interested in every subletting opportunity. The average price-point of CRE spaces may not be increasing as rapidly as it did in the wake of the recession, but as Osgood makes clear, this is a product of circumstance more than anything else.

How Technology Comes Into Play

Part of Osgood’s confidence in the CRE market stems from his staunch belief that VC funding — or at least some substitute for it — will indeed return in short order. Unlike major tech bubbles of the past, the current Silicon Valley winning streak has permeated every corner of daily life. The dot-com bubble, for instance, was at its core an insular phenomenon; a remarkable one, to be sure, but one confined to the still burgeoning internet tech sphere. Our current tech bubble, Osgood notes, has seeped into every imaginable aspect of daily life: from hailing a cab to scheduling a massage to picking up the dry cleaning.

“Now that technology is ingrained in everything that we do,” Osgood argues, “there’s so much more resiliency in the technology sector.” For most companies — regardless of industry — staying competitive in today’s markets requires becoming a “tech company” is some way, shape, or form. As such, companies offering internet-based technologies have become akin to a utility provider, and are thereby at least partially insulated from the market vicissitudes of which they might otherwise have to remain wary. There are, of course, bad tech ideas, and these will always come and go, but on the whole, the core tech industry is better-positioned than ever to enjoy sustained success.

Gaining a Competitive Edge

Even Osgood’s own business has been fundamentally changed by emerging technologies and the democratization of key commercial real estate data points. “CRE tech has made me a better broker,” he says. “The quality of service I provide is in many ways determined by my ability to access information. I started at one of the biggest firms in town simply because they had the information I needed to succeed. Now I’m able to work at a small boutique firm because technology has given me access to the same information that was previously controlled exclusively by the major players.”

Technology continues to redefine how just about every professional goes about his or her business. This perpetual revolution guarantees that the tech industry itself will continue to thrive, and as long as the Bay Area is a desirable place to live, the fate of the local commercial — and residential — real estate market will remain tied to the tech industry’s success. Like the 2015-2016 Warriors, the tech industry and the Bay Area CRE market will suffer an occasional setback here and there, but their general trajectory is firmly fixed in an upward direction.

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