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 I was with a commercial real estate broker for several hours today looking at office space for my business. He said that Commercial Real Estate is really moving well and inventory is coming way down. It's a sellers market. Rents are going up.

He said that in 2014 in the St. Louis area they leased more commercial real estate than they had in the previous 3 years combined.

David Lillienfeld writes: 

In Silicon Valley, commercial real estate (CR) is almost non-existent, and the same is true for residential. Sunset Publishing maintains a beautiful garden at its headquarters in Menlo Park. After decades during which the garden was built, it will be plowed over for housing starting Jan 1 next year. Google and Facebook are both within 2 miles.

However, the situation in Tracy, on the East Bay, is a different story entirely. CR over there isn't nearly as in demand as in the Valley, and there's still reasonably-priced apartments (read: those earning under 100K can still afford them). (See this article from yesterday for a nice summary of the state of the valley economy.)

As an index of CR in the valley, though, consider: there is real estate speculation starting along the CA-92 and 17 corridors, and there are whispers of the valley extending its reach into Half Moon Bay and perhaps even Santa Cruz in the next one-to-two decades. HMB seems more likely, though, should it happen at all.

There are now two impediments to further growth in the central valley: open space (marsh lands are being looked at for construction) and infrastructure. In the AM, 101 rivals the LIE as a parking lot. East Palo Alto could be developed but it has almost no available water supply (not just water, but the infrastructure to distribute it).

So while CR is now strong out here (and residential too—as of yesterday, there are a total of 10 houses for sale on the peninsula. There are many for lease, though even then you're only talking about 50-55 or so), it's also strained—there's a limit to how many customers can get to it, there's an understanding that the valley business environment is frothy, and while there is household formation, it's anyone's guess as to how long it persists. Things change quickly when you cross to the East Bay. Strong in the valley (including the peninsula extension) and so-so in the East Bay. Everyone "knows" a downturn is coming, but no one it seems is much prepared for it. Go to the Stanford or Santana Row shopping centers, and you get the sense the area is floating on a cloud of money. (I think of it as the fleecing of Wall Street.) One sign of this state of affairs is the abundance of Teslas on I280, I680, and the 101. The Ferrari dealership in the west valley isn't hurting, but it's nothing like it was in San Diego near the QCOM and biotech ridge locales. Teslas are now seen as the new "chick magnets."

The big imponderable in California right now (and the other constraint on RE demand of any sort) is water. One story making the rounds had Facebook and Google considering moves of some of their admin functions to Reno, until they realized Reno was as short of water as California.

If there's another year or two of drought, I think much of the money now going into CR will be written off—there won't be the growth to sustain it. Not without a war between the San Joaquin Valley and the coast over water. With 10 percent of the state's water going to almond trees versus 12 percent for all human use, it seems likely that the almond trees will lose, but not before a battle


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