You don't need too many tools beyond a set of eyes to know that downtown Palo Alto is going through an office boom, a trend that has achieved a particular poignancy over the past year.
A new analysis commissioned by the city suggests that this growth will not abate any time soon. Barring new zoning restrictions, the city will likely get roughly 10,000 square feet of new office development annually for the next decade and possibly more, according to a study that the Planning and Transportation Commission discussed Wednesday night.
The analysis was performed as part of the first phase of the "Downtown Cap Study," an effort that the city is required to undertake under a 1986 law that set a limit of 350,000 square feet for new non-residential development. That policy also specified that the city should review the cap and consider new rules once development crosses the 235,000-square-foot mark, a milestone that the city reached in 2012.
The study, performed jointly by the firms Dyett & Bhatia and EPS, evaluated growth trends, examined downtown's zoning designations and evaluated how much growth downtown can accommodate under the existing zoning. It also considered the current market for office space, which continues to sizzle.
According to the study, downtown has seen about 10,500 square feet of new commercial development annually between 1997 and 2014, though figures vary widely from year to year. A chart showing downtown office construction indicates that there was almost no increase from 2002 to 2005, a relatively modest increase of roughly 10,000 square feet in 2006, and another in 2007 and in 2009. In the last five years, the numbers spike considerably, with more than 60,000 square feet of office space constructed this year alone.
In analyzing market forces and downtown's ability to absorb more growth, the study concludes that there is an "extremely favorable environment for commercial office development in Downtown Palo Alto."
"Values are robust and new development projects have surged in recent years," the report states. "Downtown Palo Alto, while not immune to market cycles, is sure to remain a sought-after location for workspace, given the competitive factors that have driven the market to the value highs and vacancy lows that are currently exhibited. The Downtown market is likely to experience significant and continued pressure for redevelopment of underutilized sites (e.g. properties currently development well below the allowable floor-area-ratio) over the long term."
In many cases this growth will be achieved without requiring zone changes. Using existing zoning, downtown can theoretical accommodate 491,000 square feet of new non-residential development, not counting the various additional density developers can request for providing affordable housing.
But as the city's consultants pointed out Wednesday, the actual level growth won't be nearly that high because of various constraining factors. These include the fact that some of the buildings are historical, while others are too new to be replaced with bigger structures any time soon. Existing laws such as parking requirements may also make it difficult for developers to build bigger structures downtown.
Given the constraints, the consultants estimate that downtown will see an actual level of development between 53,400 and 146,000 square feet over the next 10 years, said Sophie Martin of Dyett & Bhatia.
As part of its report, her firm surveyed downtown companies in hopes of learning more about the area's business trends. The results showed that 80 percent of the surveyed firms occupied offices with less than 5,000-square-feet of space and nearly two-thirds had 10 or fewer employees. Furthermore, more than half don't provide their employees with parking and most don't offer commuting incentives.
The one thing that the consultants weren't able to determine was whether today's companies cram more workers into their space than those in the past. While anecdotes abound about tech startups having far more employees per square than the city's assumed level of one per 250 square feet, the study could not verify this trend. That's because only 9 percent of the tech firms that were contacted responded to the survey. Martin said the consulting team "did not feel there were enough data points to draw any firm conclusions."
"While there was some evidence that tech companies do have smaller amounts of space per workers compared to other workers, the sample size is really too small to be reliable," Martin said.
The new study represented the first phase of a broader planning effort aimed at setting a new policy for downtown development. It focuses on gathering data and surveying recent trends. The second phase will consider different policy options that the city can undertake to further its vision for downtown's future.
The study comes at a time when the Palo Alto is updating its Comprehensive Plan, the city's official land-use bible. One of the questions that will be considered is whether the city should adopt a new development cap or if it should pursue other strategies for easing the negative consequences of growth, chiefly parking shortages and traffic jams.
Commission Chair Mark Michael suggested that it might be time to "declare a victory" and move on to "a more efficacious planning methodology" for downtown. This could include creating a new specific plan for the area, encourage mixed-use developments and consider abolishing the 50-foot height limit for new developments.
"Let's say it (the height limit) got moved to greater than 50 feet so that it might allow five stories rather than four stories," Michael said. "It might give head room for beneficial changes, both architecturally and in land use, and you might have some pattern where you have expanded ground-floor retail with a couple of floors of office and a couple of floor of residential."
Commissioner Greg Tanaka characterized the development cap as a "blunt tool" and argued that residents care less about the square footage of new developments and more about practical things like parking and traffic.
Commissioner Michael Alcheck, the commission's chief proponent of growth, noted that while the real estate market is now "white hot," that could change. He pointed to the cyclical nature of booms and busts and said that this trend is also something that the commission should keep in mind as it plans for downtown's long-term future.
"We are rapidly approaching what could potentially be the next cliff in terms of development," Alcheck said.