Read about one of Miyamoto’s newest industrial projects
Next month, Overton Moore Properties will break ground on its $300 million Pacific Commons South development in Fremont that’s unlike any industrial project that’s come before it.
The Southern California-based developer — along with partner Invesco — envisions an industrial mega-campus with amenities that match tech headquarters. The property sits next to shopping and has access to transit. It was designed with extensive indoor-outdoor meeting space for tenants and bike and walking trails throughout.
Overton Moore is so confident in the high demand for quality industrial product in the Bay Area that it paid more than $123 million last year for the 110-acre site.
The project’s 1.7 million square feet of space will cater to advanced manufacturing, clean tech, life sciences and other industries at Cushing Parkway.
This huge gamble shows Overton Moore’s excitement about the Bay Area’s future. The company is no stranger to developing here: It already has built 850,000 square feet and bought 600,000 square feet in the region.
“They’re one of the few developers with the skills and risk profile capable of taking on such a large-scale development opportunity,” said Jason Ovadi, managing director of logistics and industrial for Jones Lang LaSalle. “The project is very well-planned and designed, appealing to a diverse range of users as it will offer a mix of advanced manufacturing, tech, high cube logistics and R&D space that could accommodate campus users and companies looking to consolidate or expand.”
Timur Tecimer, CEO of Overton Moore Properties, said his company wants to create a mixed-use campus where companies can recruit and retain “in a real amenity-rich environment.”
Not only is the project unlike anything his 15-person development company has ever built, Tecimer believes there’s no other industrial product currently like it in the Bay Area.
“We generally build two to three buildings,” he said. “It’s not every day we can build a 10-building project.”
Tecimer is taking great care to incorporate a work-life balance for employees who will work at the site by including multiple, exclusive outdoor patios connected to their office space, bike trails, and easy access to a refuge trail.
“This will be something unique when it comes to warehouse and advanced manufacturing buildings,” he said.
The company also is including pocket parks throughout the project so that employees have a place to unwind or conduct outdoor meetings.
“We’re taking a look at what has been done on Silicon Valley campuses and are incorporating some of those features into our projects,” Tecimer said. “This hasn’t been done with industrial before.”
He also estimates that when completed, the complex will represent the largest East Bay advanced manufacturing and warehouse development.
The project is not only significant for the Bay Area, but for Overton MooreProperties.
“Finding over 100 acres in an infill site and creating a unique ecosystem is huge for us,” Tecimer said. “Plus, we know Fremont well, having done business there since 2009 and with already having two very successful projects there.”
Being close to retail and BART, “great” freeway access and so close to a nature reserve made the site extra appealing to Tecimer. Then there’s the overall market metrics.
“In our view, Fremont is a leading up of innovation with over 850 high-tech or life science and clean energy companies,” he said. “To us, it’s a proven location where companies want to locate and manufacturing represents 23 percent of the workforce.”
Then there’s the simple matter of supply and demand.
Tecimer estimates there’s about a 2 percent vacancy from Milpitas to Richmond.
“I’d say less than 9 percent of total product is Class A new, functional product and less than 5 percent is Class A advanced manufacturing space,” he said.
Tecimer was also encouraged by what he describes as a “tremendous amount of demand for this product with the majority of these projects getting pre-leased.
“It’s not exclusive to Tesla, there’s also demand in AI, food processing, clean tech, line assembly, and R&D,” he said. “There’s a pretty deep, broad list of different industries taking this space.
The industrial project will be built in two phases with the first phase including five buildings totaling about 900,000 square feet and the second five buildings totaling about 800,000 square feet.
Tecimer projects Overton Moore will start delivering buildings out of the first phase in the third quarter of 2019 and the remainder sometime in 2020.
Bullish on the Bay Area
Tecimer is hopeful that Overton Moore will be able to pre-lease a good portion of the project.
“Every other project we have built in the Bay Area we have released a portion or all of it,” he said. This includes Italian syrup maker Torani Inc. recently preleasing 327,000 square feet at 2000 Marina Blvd. in San Leandro and Tesla supplier SAS Automative pre-leasing the 142,000-square-foot Eureka Landing in Newark in 2016.
People often ask Tecimer why Overton Moore is so bullish on the Bay Area industrial scene.
“The overall macroeconomics of what’s going on there in terms of job creation, innovation and new business creation is a factor,” he said. In addition, Tecimer noted that the industrial product in the area includes a lot of older, functionally obsolete buildings.
What’s up in the market
Dan Letter is managing director of capital deployment for West Region at Prologis, the giant, publicly traded industrial owner and developer based in San Francisco. He describes the Bay Area as “an industrial property power-center.”
“Given the wide range of uses and large population base to service, demand for industrial space in the Bay Area has been strong, and the market has maintained a 97-plus percent occupancy rate,” he said. “Industrial real estate in the Bay Area is land-constrained and new development is further restricted by regulatory barriers including strict zoning, building requirements, the high cost of land and competition for other uses.”
This convergence of high-demand and low-supply have forced industrial developers to consider new approaches, such as building up, Letter added. One such example is the planned Prologis San Francisco Gateway project in the Bayview neighborhood that is scheduled to break ground in the second half of 2019.
Colin Yasukochi, director of research and analysis for CBRE, said that the Bay Area industrial market is chronically undersupplied and lacks modern space.
“That’s both from the manufacturing and warehouse distribution side of it,” he said. “Typically, the best locations have generally old product, which is why there is a great need for new industrial development.There’s been a resurgence in high tech manufacturing that the old stock doesn’t really support.”
Ovadi of Jones Lang LaSalle argued that there’s a diversity of demand too, with ‘last mile’ and ecommerce users coveting close-in locations near their consumer base and more traditional goods-movement-related users moving eastward to Livermore and the Central Valley markets to provide a reverse commute for their workforce and lock in lower costs. Advanced manufacturing, tech and other users needing access to a highly skilled workforce are gravitating to Fremont and the inner Bay Area markets, he said.
So how does Overton Moore’s planned Fremont development fit into the broader landscape?
The Pacific Commons south project “really is one-of-a-kind industrial project for the Bay Area and will be a great success,” Ovadi predicted. “There are very few, if any, sites in the Bay Area that offer such a large block of land able to develop a dozen buildings. The project offers a much-needed influx of highly flexible industrial product to a very tight market.”
OVERTON MOORE’S RECENT BAY AREA DEVELOPMENTS
In addition to the three developments below, the company bought 600,000 square feet in the Bay Area.
Location: 2000 Marina Blvd, San Leandro
Size: 327,000 square feet
Status: Project slated for completion in August 2018
Tenant: Torani Inc.
Location: Stevenson Point Tech Park, Newark
Size: 142,188 square feet
Status: Opened in 2016
Tenant: SAS Automotive
Location: Cushing Parkway, Fremont
Size: 1.7 million square feet
Cost: $300 million
Status: Breaking ground in May
Just how hot is industrial space? Hotter than any other sector
Square feet of new industrial space is due to come online in the Bay Area in 2018
Square feet of industrial space in the pipeline for 2019
Vacancy rate for industrial property
Square feet of industrial space tenant demand in the current market
Year over year rent growth, and pricing at an all time high