Sonoma County employers debate how much office space is needed once the pandemic subsides

As a veteran of the home construction sector, Jason White is well aware of the boom-or-bust cycles that can make or break his business if he doesn’t prudently manage cash flow.

White has been rebuilding custom houses in Santa Rosa’s Fountaingrove neighborhood after the devastation caused by the 2017 Tubbs wildfire. About 1½ years ago, he opened an office in Windsor to make it convenient for his clients to visit, as well as provide a central location for his administrative staff of five.

When the coronavirus pandemic arrived in March, his office looked more like a financial drag than an asset. So he gave up his lease in April even after a revamp to make the structure more suitable, sold his office furniture and marketed his contracting business online.

“We didn’t know what was going to happen with future work and how it was going to impact our profits,” White said. “I’ve been trying to tighten my overhead the best I can.”

In this COVID-19 era, White is not alone. Many other local businesses are reexamining whether they actually need their office space — or at a minimum — decide whether to downsize in the future. The thinking goes: if your employees can be productive working from home, do you actually need the office.

White has been helped by repurposing a cottage he owns in Lake County and so it doubles as a company home base. And he’s using a construction app that helps keep his clients informed of the progress of their homebuilding projects. When decisions need to be made, such as the selection of certain building materials, he meets with customers in person.

“It’s important in times like these to stay as competitive as possible so we can stay working,” the builder said.

Blake Riva, president of Basin Street Properties, which owns or manages 2 million square feet of office space in the North Bay, said the office space question has been a hot topic of conversation.

“A lot of discussion is ongoing as businesses start to forecast what the future looks like as we ultimately reemerge from the pandemic,” said Riva, whose firm’s portfolio includes Petaluma Marina Business Center, the Fountaingrove Center and the Waterfall Towers on Bennett Valley Road in Santa Rosa. “We have spent a lot of time talking with our tenants to get a sense where they are in that spectrum.”

Overall, the Reno-based commercial property owner and management company has 900 tenants in Northern California and Nevada.

Basin Street now has 92% of its properties leased in the area and it expects occupancy to remain at current levels through the end of 2020. After that, Rivas anticipates changes.

“Are they planning on coming back to the office at the appropriate time, conducting business as usual going forward? Are they are going to shift to a model where some, if not all, of their employees continue to work remotely?” he said. “With 900 tenants, we are hearing a little bit of everything. It really depends on that company profile.”

The debate comes as large Bay Area technology employers who are typically on the vanguard of workforce trends, said they are reassessing the future of their office sites. Facebook founder Mark Zuckerberg told his employees in May that half of his company’s workforce could work from home within a decade. Jack Dorsey, CEO of Twitter and Square, told his workers they can work indefinitely from home.

The effects here will not be as dramatic as they will be in Mountain View or Menlo Park, yet still will be significant. Sonoma County doesn’t have that many large employers located at large campuses or headquarters. And employees of most area companies don’t face a lengthy commute to and from work that steadily erodes their quality of life, said Dave Peterson, a partner with Keegan and Coppin, a Santa Rosa real estate brokerage and management firm.

“I think in Santa Rosa and Sonoma County, people are driving 15 or 20 minutes at most,” said Peterson, who noted he once had a work commute from Petaluma to San Francisco. “I think those (large metro) centers are going to be much more impacted.”

The county’s office market has remained relatively static in the last couple of years. In the pre-pandemic January-through-March quarter, the vacancy rate was 11.9% for the overall 14.9 million square feet of office space in the county, according to Keegan and Coppin data. Six years ago, the vacancy rate was at 19%.

The consequences of the debate about the office of the future go beyond developers and property management firms, and affect public policy within the region. For example, the Sonoma County Economic Development Board is conducting a COVID-19 survey of local businesses. The agency is asking about the potential effects of remote work, especially on housing workforce options, plus recruiting and retaining employees, said Ethan Brown, the board’s director of business development and innovation.

There are indications now employers may not go to the lengths White did in shedding his leased company office, but many business leaders do envision slimming the space their companies occupy.

One example is Think Tank Photo in Santa Rosa, which sells bags and accessories for professional photographers. Its manufacturing site is in Vietnam, which has been a success story with no COVID-19 deaths, and it uses a third-party warehouse near Sacramento.

Prior to the pandemic, Think Tank had three remote workers while the rest of the employees worked in the local office. It is now ending its lease and moving to a smaller site where only four people will work at the new headquarters and the other 14 will work remotely, said Andrew Hutchins, president of the company, who lives in Nevada City and had been staying part time in Santa Rosa. A company supply chain manager who lives in Grass Valley also has been commuting back and forth on a weekly basis.

Think Tank still needed office space for its operations, specifically for design and marketing purposes. “Part of it is we are in the photo business. We need to have a photo and video studio for all of our product shoots. We can’t do that remotely,” Hutchins said.

The smaller office will provide cost savings at a time when the company has experienced a decrease in sales. Its core customers are professional photographers who are missing assignments as a result of the pandemic-related shutdown of events.

“They are not able to go out on assignment. They are not able to go shoot events, sports events and weddings,” Hutchins said.

Sonoma Media Investments, which owns The Press Democrat, also plans to shift to a smaller office when the lease expires in November 2022 on its three-story, 22,000-square-foot downtown Santa Rosa headquarters — which includes, among other things, vast newsroom space, plus advertising and human resources departments and executive offices — on Mendocino Avenue just north of Old Courthouse Square.

Steve Falk, the CEO, envisions a new building at least half the size of the current office. About half of the company’s 275 employees are now working remotely. Others such as the production crew at the Rohnert Park plant where the newspaper is printed still need to work on-site.

“At least half of those working here in Santa Rosa can work remotely,” Falk said, considering options for further in the future when the virus is no longer a threat.

Other area businesses are taking a more cautious approach.

Sonic, the Santa Rosa-based internet provider, doesn’t expect to downsize its headquarters, with more than 70,000 square feet of office space, even though it is mostly vacant these days as the pandemic lingers.

In the near term, Sonic will continue with a skeleton crew at the office, while the vast majority of its more than 500 employees work from home, said Dane Jasper, founder and chief executive. But eventually Jasper said he would like to get back to the office once it is deemed safe.

“One of things we value most and enjoy most about working at Sonic is our culture and the people we work with. That’s one of the things I am missing, personally,” Jasper said.

He conceded some employees may think working at home is a better fit for them. For example, that would include an employee who wants to move out of state seeking an area with a cheaper cost of living.

Even with the possibility of remote work for some employees, Sonic would retain its office space because the company is experiencing tremendous growth as it expands fiber-optic internet service. The business posted its strongest monthly sales in June, Jasper said. The company is trying to recruit 40 new installers.

Outside of small employers, the wait-and-see sentiment regarding office space may prevail at least initially as employers test how much change and adjustment is necessary, Riva said.

“We believe there is substantial benefits by working together in the office environment. There are certain things that you just can’t replicate such as collaboration, creativity and the benefits of working in a team environment that are very difficult to replicate when you are working remotely,” he said.

For homebuilder White, the remote work has thus far proven fruitful, bolstered by technology he uses to enhance interaction with subcontractors and customers.

“I did lose some money on (the office). But it was a decision I made pretty quickly. I think that it was probably the right decision,” he said.

You can reach Staff Writer Bill Swindell at 707-521-5223 or [email protected]. On Twitter @BillSwindell.

Business, Beer and Wine, The Press Democrat

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