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Amazon’s much-hyped expansion—the company will place 25,000 new jobs each in New York City and Arlington, Virginia—highlights how insular the tech industry can be when it comes to real estate. Tech companies based in the San Francisco Bay Area, Seattle, Boston, and New York City have taken up more than 25 million square feet of new office space outside of their primary markets over the past five years, according to a recent CBRE report. A good chunk of that is within those same four markets.
In conversations about tech capitals, Los Angeles rarely comes up, a distant second in its home state to the dominant Bay Area, which vacuumed up $26.5 billion in venture capital funding last year. But LA’s position in the tech ecosystem may be shifting.
While nobody believes that dynamic will change, LA has begun to come into its own. Homegrown successes, and the recent opening of large satellite offices by big players including Google, shows how tech is evolving here. The Bay Area isn’t suddenly moving to Silicon Beach. But it is benefiting from the changing nature of what we consider tech.
“We’re going through a renaissance at the moment because of the growth of entertainment and content,” says CBRE vice chairman Jeff Pion. “There’s a merging of tech and entertainment, and content is king at the moment. The potential from harnessing the existing entertainment workforce in LA immediately is incredible.”
Silicon Beach—a nickname for the areas of Santa Monica, Venice, Marina del Rey, Playa Vista and El Segundo where tech companies are congregating—is expanding, with companies such as Spotify setting up shop in the Arts District near downtown, and aerospace firms clustering in South Bay and Long Beach. The city’s tech employment increased 14.6 percent between 2016 and 2017, with many of the biggest names in technology—Facebook, Google, Apple, Amazon, Netflix, Spotify, and SpaceX—having opened or announced plan to open new offices. The 100 largest tech companies in the city saw a 24 percent increase in hiring last year, according to data from the Annenberg Foundation.
That growth has put pressure on the region’s housing stock and local office rents, which grew 15.8 percent between the second quarter of 2016 and 2018.
According to Eric Pakravan, a vice president with Venice-based venture capital firm Amplify, the city has always led the nation in out-of-town VC investment—a nice benefit of being an hour plane ride from Silicon Valley—but even as more investment pours into LA tech firms, VC firms are setting up shop in Southern California (the number doubled from 2016 to 2017). In 2016, LA and Orange County startups raised $5 billion collectively, and LA is on track to set a record for VC investment in 2018.
“Five years ago, a founder who wanted to keep their company in LA would get a lot of questions,” he says. “Today, it’s like, why do I need to be anywhere else?”
As every industry embraces tech, a more economically diverse city like LA becomes more valuable. In the capital of remakes and reboots, old industries have become new again.
Unlike San Francisco, LA has a ready-made wellspring of talent in the entertainment and advertising industries—the Los Angeles Economic Development Corporation estimates the region’s entertainment and content industries generate $55.9 billion annually, and a recent study said the city’s film and digital media industries generated 265,200 jobs—and a larger, more diverse population and economy. That’s led expanding entertainment giants, such as Netflix, Amazon, and YouTube, who collectively plan to spend billions on original content annually, to sign massive leases for new offices and production facilities. A study by research firm Beacon Economics predicts LA county will add 16,500 digital media and film-related jobs in the next three years.
LA’s employee base is unique, says CBRE’s Pion, with has no shortage of tech, design, and film talent coming from schools such as Parsons, USC, UCLA, and Chapman.
“It may not be equal to Silicon Valley, but the startup community down here is pretty robust,” says Pion.
With the expansion of direct-to-consumer marketing and brands, the ease of setting up e-commerce on improved sales platforms, and the tech industry’s push into a wider array of industries, Los Angeles has become much more desirable for startups. The city has birthed new consumer brands such as Honest Co. and Dollar Shave Club, which was bought by Unilever in 2016 for $1 billion. Last year, 23 percent of LA’s tech funding deals were for consumer products, and another 23 percent were for media.
These startups can cluster in neighborhoods already home to companies within their industries. Music and fashion companies may cluster around downtown and the Arts District, and the next generation of media companies are in West Hollywood.
“It’s not as much that it’s strictly tech, it’s these hybrid companies in very tangible industries,” Pion says. “An financial tech firm may take over a big office in Sherman Oaks to be near the traditional center of accounting. You’re now seeing venture-funded tech startups expand all over the city. There’s no one area that dominates.”
Further south, in Long Beach and the South Bay, Elon Musk has tapped into Southern California’s aerospace heritage with SpaceX, a private space startup. The company recently received approval to build its Big Falcon Rocket at a 19-acre plot in the Port of Los Angeles, a development that has already supercharged South Bay real estate.
Along with Tesla and Hyperloop, which plans on opening a test tunnel in Hawthorne, Musk has helped generate another LA tech cluster. In addition to raising funds—SpaceX and Hyperloop raised $450 and $135 million last year, respectively—it’s already spurred on the construction of new offices and apartment complexes, and added more excitement to nearby redevelopment plans, such as the Port of San Pedro renovation.
According to CBRE’s Pion, the move south, to an area once dominated by defense contractors, is attracting aerospace and space companies, and, increasingly, other tech firms seeking space in a supply-constrained market.
Jesse Gundersheim covers the San Francisco office market for CoStar. He says a lot of the growth in LA is spillover effect, companies that would like to be near the Bay, but due to space and price constraints, simply can’t afford it. He finds companies that do move from the Bay Area tend to head to West Coast cities such as Austin, Denver, Portland, and Sacramento, where space is cheaper. And if they have the choice, he says, they’d rather pick LA than Austin due to the lifestyle benefits.
This activity and talent base explains why nearly every tech giant has a significant presence in Los Angeles: Apple is leasing a space being built in Culver City near a new Amazon Studios office; Netflix continues to grow in Hollywood, leasing a new 13-story tower on Sunset to match its existing 14-story office; Google just opened a massive space in the cavernous Hughes Company airplane hangar that will, after renovations, contain 525,000 square feet of office space and expanded production facilities for YouTube; and Facebook is looking for 260,000 square feet of space in Playa Vista.
With those new companies and offices come more tech workers, who will continue to make an impact on local real estate. According to Stephanie Younger, who sells homes for Compass in Silicon Beach neighborhoods such as Venice, Playa Vista, and Marina del Rey, 65 percent of her buyers under contract are in the tech industry.
The number of techies and tech workers buying in Westside neighborhoods has driven up prices in an already-expensive area. While it hasn’t caused quite the same level of backlash as tech’s real estate takeover of San Francisco—the decentralized nature of LA, and the existing high prices, means the industry’s impact hasn’t been as concentrated—it has altered the homebuying market. For years, developers have been tearing down old bungalows on Venice side streets and replacing them with expensive, modernist boxes, or rehabbing with up-to-the-minute styles to appeal to 25- to 35-year-old buyers, says Younger. The growth of high, and higher-end, retail on Abbot-Kinney and Rose Avenue speak to the rising cost of living in Venice.
“Retail is probably one of the biggest indicators of what’s happened to this area,” she says.
The biggest catalyst in the emergence of Venice was the 2013 arrival of Snapchat, which decided to purchase an array of smaller spaces, including a beachfront bungalow, and gradually built a decentralized network of office spaces near the beach.
“Prior to Snapchat’s arrival, it wasn’t viewed as an office hub, it was a quirky beach town,” says Steve Basham, a senior market analyst at CoStar. “Over the last few years, it’s changed the character of the area, and there’s been lots of local resistance to the takeover. Snap [the parent company of Snapchat] took virtually all the available office space in Venice.”
In April, when Snap announced it was relocating much of its workforce, abandoning half its office space and moving workers into a traditional, centralized office in Santa Monica, it opened up 200,000 square feet of rental space — and a discussion of the future of the Venice office market.
More than six months later, it’s clear Venice isn’t going anywhere. Basham said nearly 40 new leases have been signed in the last half year, nearly double the pace of the previous three years. It’s expected that a vacuum of that size would lead to lots of new deals, but it also shows the premium new startups place on being located on the Westside.
“There’s so much opportunity to get into Venice right now,” says Michael Springer, another local analyst at Halton Pardee + Partners. “You can spend all day looking at new spaces.”
As the city’s tech scene grows, that decentralized nature is one of its biggest drawbacks. According to a Boston Consulting Group study released this spring that looks at LA’s potential, “Stars Aligning: How Southern California Could Be the Next Great Tech Ecosystem,” the city’s sprawl constricts growth opportunities, making it harder to create the critical mass of companies and employees typically required for successful innovation. The upcoming 2028 Olympics, which promises a region-wide transportation upgrade, as well as an increasing number of homegrown successes, can hopefully alleviate that problem and help build larger clusters of like-minded businesses.
Still, according to the report, Silicon Beach, where tech giants keep expanding their footprints, shows one vision of a tech-driven future economy. It may be why Venice is now attracting scores of smaller startups, says Springer. It makes sense if you follow the money; many of the city’s VC firms, including Amplify, are clustered near Santa Monica and Venice. There may be more than a few looking to capture some of the Snap magic.
If you want to buy a home in San Francisco, you better have $1 million to spend. At least.
A whopping 81% of the homes in the metro San Francisco area cost $1 million or more, according to a new report from the housing website Trulia. That’s an increase of 13.7% since October 2017.
Trulia ranked 100 U.S. metro areas by how quickly they are adding million-dollar homes, year-over-year. San Francisco didn’t come out on top of that ranking — its Bay Area neighbor San Jose just edged it out for the No. 1 spot, with a 14.2% year-over-year increase in million-dollar homes.
But San Francisco tops the list of cities when it comes to the highest percentage of million-dollar homes overall in 2018.
In San Jose, 70% of the housing stock is valued at $1 million or more, good for second place, and in yet another Bay Area city, Oakland, 31% of homes are worth more than $1 million. From there, the list drops off sharply, with no other metro area topping 20%.
These million-dollar cities are anomalies in the U.S.: Just 3.6% of all homes nationwide are worth $1 million, Trulia found.
Of course, a major reason San Francisco has become so pricey: well-off tech workers are moving in and fighting for a limited supply of homes. And, to be sure, San Francisco’s smaller size and population compared with other pricey cities — notably, New York City — makes for particularly extreme results in the data.
The spike in the city’s housing prices has happened fast.
In 2012, as the U.S. was still recovering from the 2007-09 recession, just 24% of San Francisco homes were worth $1 million or more. That climbed to 34.7% by 2013 and continued to steadily increase until 2018.
Prices in San Jose followed a similar pattern. In 2012, just 21.7% of homes there cost $1 million or more. That rose to 27.6% in 2013, 32.1% in 2014 and continued to rise until 2018, when 70% of homes in the city are now worth $1 million or more.
Many would-be home buyers would likely balk at those price tags. Nationwide, fewer people say they are planning to buy homes, according to the National Association of Home Builders, a trade group. Just 13% of Americans say they plan to buy a home within the next 12 months, marking the third quarter in which fewer and fewer people say they plan to become homeowners.
This is happening as mortgage rates continue to rise: The 30-year fixed-rate mortgage average is now near an eight-year high of 4.94%, as investors expect the Federal Reserve to continue raising rates.
But for San Franciscans, buying a home is just the beginning when it comes to cost of living. San Francisco is also the No. 1 most expensive metro area for raising a family, according to the progressive nonprofit think tank Economic Policy Institute. The basic budget for a two-parent, two-child household in the area is $148,439 per year, EPI found. The median family income in the U.S. is just $38,203 per year.
Many of the cities that boast the highest number of million-dollar homes are in California, and not just in the Bay Area. Some 20.2% of the housing stock in Orange County, Calif., and 19.6% of homes in Los Angeles are valued at or above the $1 million mark.
That’s one big reason a million more people moved out of California from 2006 to 2016 than moved in, according to the Census Bureau.
Maria LaMagna covers personal finance for MarketWatch in New York.
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Article source: https://www.globest.com/2018/11/12/how-is-ai-benefiting-retail/
SACRAMENTO — Sacramento’s relative affordability has attracted streams of people fleeing the high rents and housing prices in the Bay Area. Along the way, California’s capital city has become less affordable.
Rents rose by a record 9.6 percent last year, one of the sharpest increases in the country, according to the real-estate data firm Yardi-Matrix, and by another 2.5 percent this year. A report by the Urban Displacement Project last year found that an astonishing 95,000 low-income households live in Sacramento neighborhoods that “are already undergoing or are at risk of becoming hotbeds of displacement.”
Home values in the city have risen too —by 30 percent over the past three years, according to Zillow — though at $315,000, the price of a median home is far less than it is in the Bay Area.
We sat down with Sacramento City Councilman Jay Schenirer, who represents one of the most quickly changing districts of Sacramento, to understand how city leaders are viewing — and reacting to — all of these Bay Area transplants.
Q: People in the Bay Area have discovered that they can move here and buy a house for less than a million dollars. What has this done to Sacramento?
A: Sell a garage there, and buy a four-bedroom house here. My understanding is we have about 120,000 individuals here who commute at some level to the Bay Area. That’s just crazy. It doesn’t help anybody. It doesn’t help our environment, it’s not good for housing prices, and when you look at the number of people who have come up here and paid cash for their houses because they made so much on their house in the Bay Area that they can afford to buy something here, our housing prices, our rent prices have gone up over the last couple of years. It’s finally starting to get realistic, but a lot of that was pushed by folks moving here from the Bay Area because it’s affordable.
Q: Oak Park, a historically working-class, African-American neighborhood in your district, is often cited as an example of recent changes in Sacramento. Can you describe the area and what’s happening there today?
A: Oak Park was separated from the city when they built Highway 99, and it went downhill pretty quickly after that. Over a period of time, the redevelopment agency put a lot of money into it. And as people decided that they wanted to live closer to downtown, and as you had millennials who wanted to own, the neighborhood got very popular. A lot of the folks who have lived there for a long time have been pushed out because rents have gone up so much. The housing stock, particularly in North Oak Park, it’s just beautiful, so I can certainly see why people would want to move in there. But the demographics are changing, becoming much more Caucasian. I ran for council again this year, and as I was knocking on doors, I was really surprised by how diverse parts of Oak Park were not.
Q: I imagine businesses in the area have been changing too.
A: Businesses have been changing. The area around 35th and Broadway, 34th and Broadway, is one of the coolest areas, I think, in town. You’re getting a lot of new restaurants and things like that. It has been gentrified — there’s no question about it — and the folks who are frequenting those shops are different than the folks who have lived in Oak Park for 20 or 30 or 40 years.
Q: When people get can no longer afford the Bay Area, they tend to move further away from the coast. When people can no longer afford Sacramento, where do they go?
A: That’s a good question. I think they have gone into our own suburbs. If you look at the building that’s going on in Natomas… I think Delta Shores (a huge planned development in south Sacramento) will fill in at one point. We need about 3,000 units a year to keep up with growth in the area, so we have a long way to go to catch up. I think just further and further out, I assume.
Q: With so many people earning Bay Area salaries, how can locally-employed people compete in the housing market?
A: I would make the argument that we’re still relatively affordable. We certainly have our challenges, but I don’t think we’ve hit that point where you can’t afford to work and live in the same area. Some people might argue with that, and we’re probably close in a lot of ways, but I think that if you’re two working spouses you can do it. I don’t know that our teachers or government workers, I know some of them have challenges, but I don’t know they are getting pushed out at that level, compared to the Bay Area. It’s much worse there. I mean, if you’re a teacher in San Francisco, there’s absolutely no way you can afford it.
Q: What is Sacramento doing to keep that from happening?
A: There’s no question we need to build more affordable housing. I’m hopeful, with the $4 billion housing bond on the November ballot (Proposition 1), another $2 billion with No Place Like Home (Proposition 2) and the assumption that our next governor, which I assume will be Gavin Newsom, will recreate redevelopment agencies. So I think in the long term there is some hope there. I think the biggest challenge that we have right now is the next two, three, four years, so that people aren’t getting pushed out of their houses. We’re looking at some kind of rent control — I don’t know exactly what’s going to happen, it’s it’s been pretty contentious — and trying to find a pathway that both the business community and the advocates can live with. It’s just not right that people are getting pushed out of their homes. So we need to figure that out. I don’t know if anybody’s found that answer but we’re certainly looking.
Q: When we talked before, you didn’t think rent control was the answer to Sacramento’s rising prices. But now Mayor Darrell Steinberg is talking about a temporary rent-control proposal. Has your mind opened to the idea?
A: I am open. I mean, you sit and listen to people’s stories every week, and we want to be a compassionate community. There’s a moral issue here. I think we need to act on that. If I’m right and the long term looks better than the short term, what do we do to bridge that gap? The housing market went up about 2.7 percent on rents this year, so that’s certainly calmed down quite a bit. So how do we work with our apartment owners, our developers to keep it in that range for a couple of years? There’s some proposals on the table that would be voluntary. I’d rather see it that way, but we’ll see what happens.
Q: Voluntary rent control? I’ve never heard of that.
A: There’s a proposal out there, it’s called 3-3-3, that for three years as an apartment owner — you can opt into it it — that you will only raise rents three percent per year, and the city would actually then kick in another three percent to the owner. So the rent increase for anyone living there would be a maximum of three percent, year to year.
Q: We’ve talked a lot about the downsides of the Bay Area-to-Sacramento migration. What are the benefits, if any?
A: You know, we want a creative class here. We want folks who are going to bring something to add to our economy. We need to diversify our economy here in Sacramento — there’s no question about that. We’ve always been too heavily dependent on government and construction. What we do see is folks from the Bay Area are coming and bringing a set of skills and talents that we need to help build our economy. UC Davis wants to open a satellite campus in Oak Park. It could be 10,000 jobs if we do it right. We have to guard against the gentrification issue, we have to figure out how people are going to afford to continue to live where they’re living, we need to think about traffic. But that’s an exciting proposition, and I assume that that’s also going to draw folks from the Bay Area. So we want people to continue to want to move here and integrate them into an economy that’s going to continue to grow and diversify.
Hometown: Los Angeles. A Sacramento resident since 1981.
Education: Bachelor’s degree from UC San Diego and a master’s degree from the LBJ School of Public Affairs, University of Texas at Austin.
Career: Sacramento city councilman since 2010. He also serves as chairman of the the Sacramento Area Council of Governments and works as an independent consultant and policy adviser on education reform and youth policy. Among other jobs, he previously worked in the governor’s office on education development and planning, as general manager of the Sacramento Food Bank and as a legislative policy analyst.
Family: Married for over 30 years to Bina Lefkovitz. They have two sons, David and Noah.
Five things about Jay Schenirer
1. He has climbed to the top of Mount Rainier.
2. He has sky-dived.
3. He has officiated eight weddings.
4. He has had eight different careers, from policy analyst to general manager of a food bank.
5. He only hires the smartest people in the room.