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About this blog: I grew up in Los Angeles and moved to the area in 1963 when I started graduate school at Stanford. Nancy and I were married in 1977 and we lived for nearly 30 years in the Duveneck school area. Our children went to Paly. We moved ...  (More)

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Commercial Developments Do Not Create Jobs

Uploaded: Jul 16, 2016
Buildings—offices, hotels, restaurants, stores—do not create jobs.

In a first order sense the tenants create the jobs—the businesses and organizations that occupy space hire the people who fill the jobs that occur in the building.

But in a deeper sense it is the demand for the goods and services provided by the organizations that occupy space that actually leads to the creation of the obs.
So buildings don’t create jobs—it is the goods and services provided by occupants in response to local and worldwide demand that creates the jobs.

That is why space markets can be volatile. Firms, hotels, restaurants and non- profit organizations see sometimes see demand drop as in a recession or surge. So sometimes there is a space shortage, rents rise and more space comes onto the market. Sometimes the reverse is true especially for spec office space.

But these markets are pretty self-correcting. If spec office space is built far ahead of demand or in anticipation of job growth that does not occur, vacancy and rents will fall and building will slow.

It is certainly possible that the Bay Area office market will cool as job growth slows but there are trends in place that will soften overbuilding this time around.

Much of the job growth is within organizations that control their own building plans.

Think of Facebook, Google, LinkedIn and Apple and Stanford University. They add facilities that they are pretty sure will be filled soon by their own plans. These organizations have plans to grow in the Bay Area and while anyone can misjudge what is yet to come, their building plans are far different from spec building.

A local perspective,however, can be quite different.

While it is true that more buildings in a region do not drive job growth, it can also be true that more building construction within a local area can affect the location of jobs, rents and vacancies within the broader region.

In the Bay Area there is more land zoned for revenue producing commercial activities than can realistically be filled by even the largest projected job growth. This has two implications:

--it is further validation that simply zoning land for commercial purposes does not create jobs at the regional level

--but the more important local implication is that this regional long-term oversupply of commercial zoned land sets up sometimes intense local completion as a result of the implications of Prop 13 for local revenue generation.

Take, for example, the proposed re do of Vallco Shopping Center. While there might be small differences in whether the changing market for space like Vallco is served in that location or nearby, the proposed development responds to sub regional market demands. There are many local issues related to any new development but the idea that the development creates the jobs (or the need for housing) is mistaken. It only affects the location within, in this case, the sub region.

The sane us true for the recent land swap between Google and LinkedIn. The driving force here is the growth plans of the two companies, The land swap helps both companies but the demand comes from their operations, not whether the physical buildings are buildings are in Mt View or Sunnyvale.

Comments

 +   13 people like this
Posted by Curmudgeon, a resident of Downtown North,
on Jul 17, 2016 at 1:23 pm

Let's see ... new office developments cause no new demands on housing, traffic, or other resources in their vicinity, because their occupants to be have been in the area all along, employed, fully housed, driving around the building area, consuming educational, water, electricity, food, and waste disposal resources.

That is a fantastic revelation indeed. Its logical conclusion is no new development, housing or commercial, is necessary in the Bay Area. Everybody is taken care of now. Thank you, Steve.


 +   6 people like this
Posted by Reader, a resident of another community,
on Jul 18, 2016 at 9:12 am

Actually, all buildings initially create jobs for one of the largest and oldest industries: construction. Millions of people have worked on buildings, cathedrals, bridges, fortresses, roads, airports, harbors, tombs. Tens of thousands of men worked on the Great Pyramids of Giza which are just tombs, no occupying business.

Buildings themselves also require a certain amount of ongoing/periodic maintenance: cleaning, landscaping, maintenance, painting, sometimes security, etc. Depending on the building, there might be property management, real estate agents, title companies, mortgages, alarm companies, and others involved.


 +   1 person likes this
Posted by stephen levy, a resident of University South,
on Jul 18, 2016 at 9:48 am

stephen levy is a registered user.

Reader,

You are correct of course. Buildings do have jobs associated with their construction and operation.

The point I am making is that these buildings are supported by the tenant demand. They are the ones and the people and business who want the goods and services produced by the tenants who are the reason for the jobs that are created.

If there is not underlying demand a temporary oversupply of buildings will soon be corrected until demand catches up.

This is why building falls off in recessions. You could build more office buildings during a recession if you believed they created jobs for the tenants but, in fact, when jobs decline, vacancies rise and new office construction takes a pause.


 +   4 people like this
Posted by Neilson Buchanan, a resident of Downtown North,
on Jul 18, 2016 at 10:53 am

Steve, isn't there a major third implication to...ie "land zoned for revenue producing commercial activities."

OK, there will be boom and bust cycles for these commercial properties. Some developers, especially established companies, cut their risks. Others speculate. But you point out eventually markets correct and properties are occupied.

Third implication is that in the long run there are more workers who need housing somewhere. Zoning for housing has quite a lag for political and practical reasons. There is legit reason to debate NOW quality of neighborhoods, cut thru traffic, park availability, future school sites, size of school playgrounds, densities, heights and what our two, very small downtowns should be. Regional office park and destination restaurants are the worse option. It is time for downtown development moratorium until all the parties come together and reboot old development decisions.

IMO, there is a greater development implication. And it is the lag for public funding of infrastructure..water, roads, trains and issues as small as Palo Alto's woefully under-funded, under-managed TMA.


 +   2 people like this
Posted by Mark Weiss, a resident of Downtown North,
on Jul 18, 2016 at 5:16 pm

Mark Weiss is a registered user.

I'd like to read a column with more info on Vallco.

They are adding housing to a former shopping center.

Cupertino, not Palo Alto, but the developer has four projects here as well.


 +  Like this comment
Posted by Added facts, a resident of Crescent Park,
on Jul 19, 2016 at 3:01 pm

deleted, the blog is about commercial developments and who creates the jobs sited in the buildings and has nothing to do with Edgewood Plaza local issues, which are real but have many existing Town Square threads to post on.


 +   2 people like this
Posted by stephen levy, a resident of University South,
on Jul 19, 2016 at 3:30 pm

stephen levy is a registered user.

Neilson,

There is a large and growing shortfall of housing relative to the recent and ongoing population growth.

And no matter what any specific small city or cities do, there is much more zoned commercial space in the region than will ever be filled realistically so there will always be sufficient supply somewhere in the region.

And you are certainly spot on that the past and future growth calls for more infrastructure investment, particularly in moving people and goods around with the least impact on traffic and parking.

although it is not a topic in the blog, thank you for your ongoing efforts to calla attention to the opportunities from fully funding the TMA.


 +   2 people like this
Posted by Allen Akin, a resident of Professorville,
on Jul 19, 2016 at 5:19 pm

I haven't commented previously because, while I believe your assertion is correct, I don't think I understand its implications.

Nevertheless, your response to Neilson prompts me to observe that building spec commercial space can have consequences. For example, a property with newly-constructed commercial space is probably less likely to be converted to housing, schools, transportation terminals, or other much-needed uses than a property with older structures that might be replaced at lower cost (with rezoning if needed).

There's some value in not building until you can predict what you need to build.


 +   1 person likes this
Posted by I_got_mine, a resident of North Whisman,
on Jul 21, 2016 at 5:33 pm

The factor left out: Google is experimenting for the future; what about ROBOTICS and ROBOTS REPLACING FORMER HUMAN JOBS? This includes Drones, vehicles, security ( including building security ) automatic building cleaners, FAST FOOD EMPLOYEES ( kiosks are here NOW for both fast food and parking meters ) Who is going to hire a worker for $15.00/hr when a robot can do the same job? I've worked in Robotics for many years; AGVs and parolee tracking systems that use GPS before it became popular and built into your hand held devices.

Japan knows the aged will need robots to help them live; ASIMOV was just the start. The treat their aged with far more compassi
on than we do. Japan already has a fully robotic restaurant.
Now tie today's computing power to the robotics used now.
That will change the game of housing and business for now and in the future.


 +   1 person likes this
Posted by pogo, a resident of Woodside: other,
on Jul 22, 2016 at 7:56 am

pogo is a registered user.

If developers construct buildings that don't fill up or have failing tenants, then their space becomes vacant, supply increases and rents fall... and they build less.

If developers construct buildings that fill up with successful tenants, then there is less space available, supply decreases and rents go up... and they build more.

Developers don't invest in these projects as an academic exercise. These are very expensive ventures designed to make money.


 +   4 people like this
Posted by Curmudgeon, a resident of Downtown North,
on Jul 22, 2016 at 4:22 pm

Popular wisdom holds that building freeways brings more cars. That is almost, but not quite, true. Building freeways _enables_ more cars to move about and therefore promotes car travel, as building commercial developments enables additional employment in the area and therefore promotes local job growth. People do not usually set up their desks on the streets, sidewalks, and park benches.


 +   4 people like this
Posted by charles reilly , a resident of another community,
on Jul 22, 2016 at 6:58 pm

Commercial and Residential Construction definitely creates jobs!... For about 90 days for each subcontractor. Then, unless there is even more development, those guys are unemployed. Sunnyvale and Santa Clara still have oceans of empty office space left over from the Dot.com boom. No one wants the office space as decent housing is far, far away. Spurious construction to "create jobs" is a taxpayer rip-off.


 +  Like this comment
Posted by I_got_mine, a resident of North Whisman,
on Jul 27, 2016 at 8:42 pm

The comparison is made between Vallco and the Cinderella City Mall and the Cinderella Drive-In. The history shows that this was the Largest Mall built west of the Mississippi River. The Mall was not keeping businesses, it was too old compared to others. The City of Englewood had a long term growth plan in case this happned. The City Government renovated and moved into the former mall.
The Cinderella City Drive-In was at a crisis point; they had to buy $500,000 of digital projection equipment because film was no longer how movies were sent out to Dive-Ins.
So now, as part of the long term growth plan, 4 story housing now sits where the Drive-In was.

This is an example of managed growth by a city. U.S. Highway 285 runs right through Englewood and an RTD Light Rail station is within walking distance. Downtown Denver or the DTC ( Denver Tech Center ) is serving the working population. When the population gets old, Swedish Hospital is 4 blocks away from U.S 285.

This is one example of managed growth which is flexible to job growth i the Denver area. BTW, Sports Authority had it's HQ there. Is that loss of jobs affecting Englewood? Not as much as you would think. Business comes and goes but the city remains.




NO, Commercial Development does NOT create jobs. Proper City Planning DOES!


 +  Like this comment
Posted by Ellsworth M. Toohey, a resident of Old Mountain View,
on Jul 28, 2016 at 8:57 pm

Everyone knows that the government is the real creator of jobs. Private commerce is a simply a leach on true social progress and justice can only be achieved collectively by each man subordinating himself to the standards of the majority. I feel it is my duty to offer you my advice despite what Hank Rearden may think.


 +  Like this comment
Posted by Nonsense, a resident of Southgate,
on Jul 30, 2016 at 1:46 pm

Steve, this is one of the worse blogs I've seen you write. This is not an attack, I appreciate your thoughtfulness. But you are mixing companies with global products, mostly in terms of software or services with local impacts. The larger companies you mention are concentrating physical assets in our suburban communities- people, vehicles, buildings while their output has much lower utility locally. So there local cost far outweighs their local benefit. While the demand for commercial construction, because of a desire to concentrate a technically proficient workforce centrally in the SF Bay Area has the effect of bringing more and more jobs to our area without limit.

If we were talking about manufacturing there might be physical limits to how many workers should be located nearby. But software is eating the world AND eating Palo Alto.


 +   1 person likes this
Posted by Pat Burt, a resident of Community Center,
on Jul 31, 2016 at 1:46 pm

Steve,
This really is an odd posting that seems focused on a semantical distinction rather than the real issues that we face as a city and region.
While it is true that commercial zoning does not create jobs, commercial zoning and resulting commercial development does result in jobs occurring locally and those jobs result in the need for corresponding housing. Less commercial development reduces the rate of job growth and greater construction increases job growth, both direct jobs in those buildings and the significant job multiplier effect of tech positions.
That is the issue for Palo Alto and communities on the peninsula where we have high rates of job growth and a transportation system that has not been close to able to accommodate that growth. If peninsula cities slow their rates of job growth they can begin to correct their severe jobs/housing imbalances while addressing transportation challenges. That seems to be a more appropriate discussion rather than a "buildings don't create jobs" argument.
A more meaningful set of questions might be, does Silicon Valley need to capture and retain such a high proportion of the emerging tech jobs? Would other regions benefit from receiving a greater proportion of the tech jobs (and their job multipliers) that are being created?


 +   4 people like this
Posted by Bliss, a resident of another community,
on Aug 6, 2016 at 6:13 pm

Buildings don't create jobs? It's the consumer demand for products and services??

What an ignorant concept. In actuality, most of the local job growth comes from the PERCEPTION of POTENTIAL DEMAND from consumers BY THE INVESTMENT COMMUNITY!

The investors own the companies and they decide how many people should be hired in particular market segments and companies.

The other important point to make is that since the business effectiveness of tele-commuting and remote collaboration has fallen well short of its potential, the leading companies have remodeled themselves to minimize it. As examples, Google, Facebook and Apple continue to build up at their HQ locations and many companies have followed suit. Companies that choose the less effective remote models are surviving by monopoly, being in a niche market or are simply treading water.

That is the reality. Address it or this region will be wall-to-wall company campuses.



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