Steelcase to recall up to 165,000 Swivel Chairs

Ouch... The U.S. Consumer Product Safety Commission in cooperation with Steelcase Inc. have issued a recall for 165,000 Cachet Swivel Chairs sold between May of 2002 and October of 2009.

The chair which sells for up to $600.00, has a bad "front seat support...(which) can crack and fail, posing a fall hazard to consumers". Steelcase has agreed to replace the chair for individual consumers, and to repair the chair for commercial customers who purchased in quantity.

The Monday Morning Quarterback (a contract furniture industry trade publication), has reported that the estimated cost of the recall to Steelcase is upwards of $4.7 million.

If you purchased a Cachet chair subject to recall, you can click (HERE) to learn how to get your chair replaced or repaired.

When does a bubble begin?

When do appreciating assets become a bubble? In San Francisco, activity and interest for "alternate" office space in the South of Market Area (SOMA), is now higher than class-A space in the downtown Financial District. This recent imbalance in interest has been driven by tech firms such as Zynga, Google, and Twitter (to name a few), who have sucked up hundreds of thousands of square feet of SOMA space.

250 Brannan Street, San Francisco

The result has been an increase in SOMA building valuations, highlighted by the recent sale of 250 Brannan Street for $33 Million. As reported in the San Francisco Business Times last week, the sale price represents a 12% increase over the last sale of the building in 2007. 

So are we in the midst of the next "bubble"....

ABI Jumps in December

The Architectural Billing Index (ABI) jumped nearly two points in the latest report from the American Institute of Architects. The ABI rose from 52.0 in November to 54.2 in December (any score of 50 or greater represents an increase in billings). The November rating was the previous highest score since 2007.

The ABI is a leading economic indicator of construction activity, reflecting a general nine to twelve month lag between architectural billings and construction spending.

December Regional Averages:

• Northeast: 55.3
• South: 54.8
• Midwest: 52.9
• West: 48.4

Feds Must Lease Space in Energy Effecient Buildings

A new law went into effect in late December 2010, mandating that (with few exceptions) federal agencies may only occupy space in buildings that carry the U.S. EPA's ENERGY STAR label.

The Energy Independence and Security Act of 2007 formally went into effect on December 19, 2010. The General Services Agency (GSA), which handles leasing and property matters on behalf of the Federal Government, began integrating the new leasing requirements into negotiations and leases as of September of 2010.

A famous saying is "don't fight the Fed". This is generally attributed to fiscal policy, but the Federal government is the nation's largest commercial tenant, leasing more than 370 million square feet of space in 2008 alone. When the Fed says we only lease in ENERGY STAR buildings, commercial property owners and managers listen.

Sustainability is no longer a trend, it is now a policy.

Consolidation in Office Furniture Industry Continues into 2011

Capacity reduction appears to be the theme for 2011 as major players in the manufacturing and distribution side of the office furniture industry continue to "right-size" their organizations.

Published reports this week detail that Steelcase Inc. plans to close three manufacturing facilities in North America (two in the mid-west and one in Canada), resulting in approximately 750 layoffs. There is speculation that some of the jobs (including the manufacturer of the high end Leap chair), could be moving south to Steelcase plants in Mexico.

Last week United Stationers, an office furniture and office supply wholesale distributor, announced a series of "Workforce Realignment Actions". These "actions" include a "voluntary early retirement program", and a "focused realignment in certain areas of the company". No further details were provided, however "Workforce Realignment Actions" seems like a nice euphemism for layoffs.

From the sidelines it seems a bit late in the cycle to be making these types of major operational changes...

Allsteel's Stride Recognized for Good Design (Again)

Allsteel Inc. continues to be recognized for their innovative design, earning two 2010 GOOD Design awards from the Chicago Athenaeum and The European Center for Architecture Art Design and Urban Studies, for expansions to their Stride Workstation platform.

Awards were earned for its Stride Benching System

and for Stride's unique Sit to Stand application, which can be integrated into any of Allsteel's workstations:

I still find that a lot of my clients equate today's open plan workstations to Dilbert's cube. Those days are long gone, and the spaces being designed today look nothing like the cube farms of yesterday.

If you haven't seen current workstations (2007 and newer), click (HERE) to check out the Stride website and to see what good design is all about.

More Sustainable Standards for Furniture

First came LEED certification, next came the CALGREEN requirements (for those of us in California), now we can all breathe a sigh of relief because ANSI (American National Standards Institute) has approved and released the ANSI/BIFMA e3-2010 Furniture Sustainability Standard.

The e3 standard defines the technical requirements of the Level product certification program. The Level program is actually a useful tool, in that it provides the industry a standard benchmark to evaluate whether or not office furniture is manufactured in a sustainable manner using sustainable materials. This separates the truly sustainable products and organizations from the posers.

If past history is guide, the larger manufacturers will conform to the Level product requirements, and the smaller manufacturers (and specifically import manufacturers) will not.

Watergate Towers Final Chapter...

Almost 1 year ago I posted the sad saga of Emeryville California's Watergate Towers, the marquee East Bay office complex that became a victim of the financial crisis, and fell into foreclosure in February of 2010. I closed that post by writing "Final chapter on this one isn't written yet --"

Well it looks like we can now close the book, because Watergate Towers has brand new ownership (and it isn't the bank). As widely reported in the Bay Area media, three of the four buildings in the Watergate office complex have been purchased by a joint venture between LBA Realty and Starwood Capital Group.

No surprise that the estimated purchase price of $130 Million represents a steep (+ / - 40%) discount from the original purchase price paid by a Hines backed investment group back in 2006. (Hopefully they can fix the elevators now)...
Some previous posts on the Watergate Towers saga:
July - 2009
November - 2009
February - 2010
September - 2010

Commercial Real Estate Back to "Normal..."

Commercial Real Estate is coming back strong. Sales volumes increased from $22 billion of transactions in Q1 2010 to nearly $36 billion of transactions by Q4 2010, according to commercial real estate information company CoStar Group. In an article posted on the Costar website (click HERE for the article), industry experts are forecasting sales volume increases of 20% to 25% for 2011, and calling these volume levels sustainable.

At the local level, Bay Area commercial brokers and property managers are reporting a significant increase in tours (potential tenants touring space) over the past 45 days. And (unlike most of last year), deals are actually moving forward and closing.

Factory Orders Up - Office Furniture Mfgs Up

New factory orders increased 0.7% in November, reversing an identical 0.7% drop in October. Not coincidentally all of the "major" office furniture manufacturers reported sales increases for their most recently reported quarters:

• Steelcase: + 9% year over year revenue growth for Q311
• Herman Miller: +19.9% year over year revenue growth for Q211
• Knoll: + 12% year over year growth for Q311
• HNI (parent of Allsteel): Forecast + 10-12% for Q410

Look for pricing to begin returning to normal (read that as prices will go up), as factory capacity starts to fill, and the cut-throat discounting that has been present for the past two years starts to recede.

Top Interior Design Products of 2010

What would the start of a new year be without a review of what happened last year... With that in mind here are the Top Interior Design Product Picks of 2010, courtesy of Contract Magazine.

View the complete list: (HERE).

Allsteel's Stride - a Top 10 Selection

Slowing China's Inflation - Speeds U.S. Inflation

Article yesterday on Bloomberg.com about how the Chinese government has taken steps to slow down its overheated economy. Specifically the government is limiting bank lending, which immediately led to a slowdown in manufacturing (China's Purchasing Manager's Index shrank from 55.2 to 53.9 surprising most analysts).  

Good for China, but the direct impact on the U.S. (specifically the office furniture industry) will be a continued rise in the cost of imported office furniture. We've seen prices on imported furniture rise steadily since mid 2009 due primarily to transportation cost increases. Now add increased financing costs and a slow down in production, and I expect to see at least two wholesale price increases from our import  vendors in 2012.

Commercial Real Estate Forecasters Calling for Growth in Bay Area

Commercial real estate forecasters are calling for a strong South Bay and San Francisco renaissance over the next couple years, with some saying San Francisco could return to its 2007 peak employment levels as soon as 2013.

Published reports in the The Registry (an SF Bay Area real estate monthly magazine) have forecasters calling for  "San Francisco, and to a lesser extent San Jose, [to] lead the U.S. economic recovery, with San Francisco regaining its peak 2007 employment levels no later than 2013 and San Jose not far behind, driven by business demand for its technology. But Oakland, a perennial laggard, will stay true to form, not recovering until San Francisco and San Jose are in full bloom and begin to send overflow demand its way sometime in 2014 and beyond."  Click: (HERE) to read the complete article.

In a separate story (also from the The Registry), Ken Rosen, chairman of Berkeley-based Rosen Consulting Group and Rosen Real Estate Securities, stated "Silicon Valley, which created nearly 10,000 jobs in the first three quarters, adding 1.1 percent to its employment base, is the strongest geography in Northern California and one of the strongest in the nation".  Click: (HERE) to read the complete article.

Anecdotal reports from various office furniture manufacturers and dealers confirm that activity has picked up significantly in the South Bay and San Francisco (specifically the SOMA area). I can tell you that the East Bay is still lagging, as it struggles to replace the mortgage and residential real estate and construction businesses that drove growth through the mid 2000's.

Law suit filed claiming LEED Program is a Fraud

A law-suit was filed last week against the United States Green Building Council (USGBC), claiming that the USGBC LEED certification program is a fraud. The suit was filed by Henry Gifford, a New York City building energy consultant.

The suit centers around the USGBC's claims that LEED-certified buildings use 25 to 30 percent less energy than buildings that are not LEED certified. The suit alleges these claims are fraudulent misrepresentations. The claimants are seeking Class-Action status.

Ouch... this law-suit, in conjunction with the roll out of CAL-GREEN at the start of 2011, could mean a bumpy road ahead for the entire LEED concept.

East Bay Economic Update - August 2010

Latest update from the East Bay Economic Development Alliance - take it with a grain of salt, because it feels like things are changing rapidly (for the better), and this data is now 30 days old.

Unemployment:  East Bay rate was 11.8 percent in July 2010, up from a revised 11.4 percent in June 2010, and above the year-ago estimate of 11.3 percent. This number compares to the following:

• California: 12.8 %
• Alameda County: 11.9%
• Contra Costa County 11.7%

Building Permits: The dollar value of commercial permits issued in the East Bay fell 49.9 percent when compared with the previous period. Commercial building permit values declined throughout the Bay Area during this period, falling most sharply in the Napa region (down 98.1 percent).

Industrial permits were actually up during this time period, primarily due to the East Bay and Vallejo-Fairfield regions. These areas experienced 420.4% and 310.4% increases compared to the previous period.

Our Brush with Watergate's "Deferred Maintenance"

Lots of talk in the Bay Area recently about the fate of the Watergate Office Towers in Emeryville. Three of the four buildings in the complex went into default, and are in the process of being sold. Asking price(s) range from $130 Million to $150 Million (depending on whom you ask) - but everyone agrees on one thing; the buildings need a lot of maintenance.

Which brings me to my post today -- we were making a delivery last night to one of the buildings in question, when we experienced what a lack of maintenance can do... namely the freight elevator we were using broke down, stranding our product mid-floor over night. The story has a happy ending, product was safe and sound, and freed from its captivity this morning.

Fortune's Fast 100 Companies -

Fortune Magazine released its annual Fastest Growing Companies list - Good news for those of us in California, 15% of the companies have headquarters in the golden state, with 8% headquartered in the Bay Area.

The California companies are listed below, you can access the complete list  (HERE).

Rank Company City
4. salesforce.com San Francisco
13. Thoratec Pleasanton
18. Apple Cupertino
21. Intuitive Surgical Sunnyvale
27. Illumina San Diego
32. Deckers Outdoor Goleta
35. Multi-Fineline Electronix Anaheim
51. Netflix Los Gatos
57. Synaptics Santa Clara
66. Dolby Laboratories San Francisco
78. True Religion Apparel Vernon
79. Corinthian Colleges Santa Ana
86. SunPower San Jose
94. PriceSmart San Diego
98 Gilead Sciences Foster City

Top Office Furniture Vendors to the Federal Government

From the pages of the Monday Morning Quarterback, the office furniture industry's trade publication, comes the top suppliers of office furniture to the federal government (based on 2009 sales).

(all figures in millions)
1. Knoll $121.5
2. Federal Prison Industries $103.4
3. Herman Miller $94.4
4. KI $91.3
5. HNI (Allsteel, HON, Gunlocke) $71.7
6. Haworth $70.1
7. Steelcase $63.1
8. Kimball $44.2
9. Misc. Foreign contractors $27.2
10. Teknion $25.1

In addition to the list, the article also pointed out that the annual purchases by the federal market had nearly tripled over the past decade. Growing from $515 Million in 2000 to $1.3 Billion in 2009.

China Costs Increase...Time To Look South?

Continuing cost increases (both wage increases and transportation increases) related to products sourced in China, are driving companies to look for alternate (read less expensive) countries. This will have an impact on the current low prices for office furniture.

Based on a story from Bloomberg.com, electronics makers are already beginning to look at Mexico as an alternate labor source. The story quotes Flextronics CEO; "As China moves up, up and up and up, for five straight years, it’s been moving up heading towards Mexican pricing...Mexico’s been the same labor cost for the past five years, it hasn’t moved up at all.”

Aside from direct imports which accounted for approximately 24% of the total office furniture market last year, every major domestic manufacturer sources components from abroad (primarily China). This is going to be an important story to watch over the next 18 - 24 months.

Read the Bloomberg.com story (HERE).

Disorganization Costs Money...

Surprise, a messy office costs money. Lots of money if you believe the findings released by Brother International Corporation. Brother sponsored the "P-Touch Means Business" survey in which 800 part-time and full-time U.S. employees responded to questions about their general level of organization. The survey found that disorganized workplaces cost an estimated 76 working hours per person each year, which they extrapolated to $177,846,846,126 (yes $177 BILLION).

Additionally, the survey found that:

•Office workers perceive their work areas to be more organized than their peers. 87 percent say when their workspace is disorganized they feel they are less productive than when their workspace is organized. Additionally, 80 percent agree that someone who is disorganized hurts the productivity of the whole office.


•Thirty-seven percent of office workers have gone into a work meeting feeling unprepared. This holds true for close to half of Gen Y (18-24) office workers and 49 percent with a household income of $75,000+.

•Disorganization is a reason why employees are not being reimbursed for business travel from their employers. 30 percent of office workers have lost out on getting reimbursed for a business or travel expense because they misplaced or lost a receipt.
 
If you want to find out how organized you are, you can take a 3 minute survey (HERE) to find out.