STRATEGIC ECONOMICS | 2991 SHATTUCK AVE. BERKELEY, CA. 94705 | 510.647.5291
MEMORANDUM
To: Mark Hungerford, Associate Planner, City of Fremont From: Derek W. Braun, Principal and Tatum Troutt, Associate Date: January 14, 2022
Project: Change of Use Assessment for 40517 Albrae Street Subject: Findings of market assessment and economic benefits analysis
EXECUTIVE SUMMARY
PURPOSE AND SITE CONTEXT
At the request of the City of Fremont, Scannell Properties retained Strategic Economics to conduct a market assessment and an analysis of the fiscal and economic benefits associated with a proposed development project at 40517 Albrae Street, with the analysis including:
1. The market potential to develop retail uses currently allowed under the site’s zoning and General Plan land use designation;
2. The market potential for development of industrial uses at the site, including the likely types of tenants that would locate at the site;
3. The economic and fiscal benefits that would be associated with Scannell Properties’ industrial development proposal for the site.
The “Subject Site” consists of 22.36 acres out of a total of 31.48 acres previously intended for development as part of “The Globe,” a regional retail center and multi-phase development project approved in 2007. The City of Fremont approved Preliminary and Precise Planned District P- 2006-10 for the entire 31.48 -acre area in 2007, allowing for multi- phase development of a regional retail center. The Subject Site today remains undeveloped and vacant. While several vacant buildings were demolished by the previous property owner, the site’s overall condition has deteriorated and visually detracts from the surrounding industrial and commercial environment.
Scannell Properties is requesting that the City of Fremont amend the Subject Site’s General Plan land use to “Tech Industrial,” and approve the proposed Preliminary Precise and Planned District P- 2021- 160. The Tech Industrial land use “…primarily applies to areas used for research and development, “clean and green” tech, and semi-conductor, computer hardware, software and related technological, administrative, sales, and engineering facilities”; the land use allows manufacturing, R&D, warehouse, Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 2 and distribution facilities. 1 Scannell Properties is also requesting approval of a tentative parcel map and an environmental impact assessment for a proposed three -building industrial development project at the Subject Site.
FINDINGS AND CONCLUSIONS
Although existing shopping centers are generally performing well in Fremont, multiple significant challenges exist for retail development at the Subject Site:
• The rise of e-commerce is leading to a reduction in the square feet of retail space required per household, a trend reflected in declining square feet of space per household in Fremont, surrounding communities, and in Alameda and Santa Clara Counties. Instea d, trends favor reinvestment at existing retail centers, including incorporation of non -retail uses, often by removing existing retail space.
• A future shopping center at the Subject Site would need to compete with a substantial existing supply of retail serving customers from within the same regional and local trade areas.
• While the Subject Site itself does feature positive attributes as a retail location, including excellent regional access via I-880, the site lacks immediate proximity to complementary and larger retail concentrations at NewPark Mall and Pacific Commons. As a result, a new shopping center at the site would need to compete with those centers rather than benefit from co - location with existing shopping destinations.
Demand for industrial space is strong in Fremont, including R&D, advanced manufacturing , and warehouse and distribution space . Fremont is uniquely well positioned to attract R&D and advanced manufacturing tenants due to the city’s direct access to Silicon Valley businesses via the Dumbarton Bridge and the city’s access to a workforce with a diverse range of education and specialized skills.
Fremont’s ability to attract R&D and advanced manufacturing uses is demonstrated by both recent tenanting trends and significant venture capital investments in innovation-oriented businesses located in southern Alameda County.
New industrial space at the Subject Site would be well-positioned to attract a diverse set of businesses, including businesses engaged in R&D, advanced manufacturing, and warehouse and distribution activities.
Strategic Economics estimated that approximately 650 jobs would be associated with Scannell Properties’ development proposal for the Subject Site . Assuming that a mix of manufacturing, R&D, and warehouse/distribution business activities locate at the Subject Sit e, Strategic Economics’ analysis showed that the development proposal for the site would accommodate a diverse mix of jobs by occupation, with the greatest numbers of jobs in professional technical occupations and production occupations. Potential new jobs at the Subject Site would also be associated with a diverse range of average annual wages, with overall average wages highest for jobs in the R&D space, followed by the manufacturing space and warehouse space . Entry-level education requirements for jobs w ould vary significantly by land use, with manufacturing jobs providing the greatest diversity of opportunities for workers at a variety of education levels.
1 City of Fremont General Plan, December 2011.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 3 The City of Fremont is estimated to receive $305,400 in recurring annual revenue upon buildout and stabilized occupancy of the proposed industrial development project, representing nearly $3.2 million over the following ten-year period (in 2021 dollars), as shown in Figure 1. The Fremont Unified School District would also receive over $2.8 million in the same ten-year period. If the industrial development project does not move forward and the site instead remains vacant, the City of Fremont and Fremont Unified School District would only receive minimal property taxes based on the assessed value of the vacant land.
Businesses and workers located in the industrial development project would also support additional sales tax revenues, unsecured property tax revenue, and retail spending at adjacent businesses.
Although Strategic Economics did not quantify these revenues, the 650 on-site workers would support additional spending at the Walmart and businesses in shopping centers adjacent to the site . This spending would generate additional sales tax revenue for the City of Fremont. The City of Fremont would also receive additional unsecured property tax revenue based on the assessed value of business equipment, fixtures, and furniture.
FIGURE 1: REVENUE, YEAR 1 OF BUILDOUT AND STABILIZED OCCUPANCY, AND TEN-YEAR REVENUE (2021 DOLLARS) Tax Revenue Source Year 1
Total, Years 1-10
(2021 Dollars)
Property Tax: All Jurisdictions $1,243,079 $12,430,787
Property Tax: Fremont Only $158,950 $1,589,499
Property Tax: Fremont Unified
School District Only $281,526 $2,815,261
Business Tax: Manufacturing and R&D $15,846 $169,289
Business Tax: Warehouse $205 $1,879
Sales Tax $130,391 $1,425,191
Total Annual Revenue, Fremont Only $305,392 $3,185,858
Source: Strategic Economics, 2021.
The proposed industrial development project would also provide $3.1 million in required one -time impact fees to mitigate the project’s impacts, as shown in Figure 2. The City of Fremont imposes impact fees to ensure development projects mitigate their own impacts on the City’s capital facilities, fire facilities, traffic, and affordable housing needs.
FIGURE 2: ONE-TIME IMPACT FEE REVENUE
Land Use
Capital
Facilities (per
1,000 sq ft)
Fire Facilities
(per 1,000 sq
ft)
Traffic (per
1,000 sq
ft)
Affordable
Housing (per
1,000 sq ft) Total
Total
per sq
ft Total Fees
Manufacturing $648 $385 $2,978 $4,170 $8,181 $8.18 $1,558,505 R&D $822 $488 $4,249 $8,340 $5,559 $5.56 $260,378
Warehouse $456 $377 $3,503 $4,170 $8,506 $8.51 $1,342,102 Total $3,160,985
Source: City of Fremont Fee Schedule, Effective January 2, 2022; Strategic Economics, 2021.
Scannell Properties will also be required to provide traffic signal and roadway enhancements and other on-site and off-site improvements, and has committed to provide a voluntary contribution of $500,000 to fund homeless services as a condition of project approval.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 4 INTRODUCTION
At the request of the City of Fremont, Scannell Properties retained Strategic Economics to conduct a market assessment and an analysis of the fiscal and economic benefits associated with a proposed development project at 40517 Albrae Street. Specifically, Strategic Economics examined:
1. The market potential to develop retail uses currently allowed under the site’s zoning and General Plan land use designation;
2. The market potential for development of industrial uses at the site, includ ing the likely types of tenants that would locate at the site;
3. The economic and fiscal benefits that would be associated with Scannell Properties’ current industrial development proposal for the site.
Strategic Economics prepared this memo’s findings and conclusions to help inform the City of Fremont’s decisions regarding whether to allow Scannell Properties’ proposed change s to the site’s existing land use and zoning.
SITE INFORMATION
The “Subject Site” consists of 22.36 acres out of a total of 31.48 acres previously intended for development as part of “The Globe,” a regional retail center. 2 The Subject Site is located west of Interstate 880 along Albrae Street south of Stevenson Boulevard, adjacent to retail and industrial uses. The General Plan currently designates the Subject Site’s land use as Regional Commercial. The General Plan specifies that “Regional Commercial areas include large -scale commercial uses serving a citywide or regional market, typi cally on large sites along freeways or major arterials.” 3 The City of
Fremont approved Preliminary and Precise Planned District P-2006-10 for the entire 31.48 acre area in 2007, allowing for multi- phase development of a regional retail center. However, th e Subject Site remains undeveloped and vacant today. Additionally, while several vacant buildings were demolished by the previous property owner, the site’s overall condition has deteriorated and visually detracts from the surrounding industrial and commercial environment.
FIGURE 3: EXISTING SUBJECT SITE CONDITION AND RENDERING OF POTENTIAL DEVELOPMENT PROJECT APPEARANCE
Source: Scannell Properties, 2021.
2 Based on architectural plans provided by the City of Fremont, the overall site consists of assessor parcel numbers 531 -416-003, -004, - 005, and -006.
3 City of Fremont General Plan, December 2011.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 5 REQUESTED LAND USE CHANGE AND DEVELOPMENT PROPOSAL
Scannell Properties is requesting that the City of Fremont amend the Subject Site’s General Plan land use to “Tech Industrial,” and approve the proposed Preliminary Precise and Planned District P- 2021- 160. The Tech Industrial land use “…primarily applies t o areas used for research and development, “clean and green” tech, and semi-conductor, computer hardware, software and related technological, administrative, sales, and engineering facilities”; the land use allows manufacturing, R&D, warehouse, and distribution facilities.4 Scannell Properties is also requesting approval of a tentative parcel map and an environmental impact assessment for a proposed three -building industrial development project at the Subject Site. The proposed development project consists of the buildings described in Figure 4.
FIGURE 4: SCANNELL PROPERTIES DEVELOPMENT PROPOSAL FOR SUBJECT SITE Building Specified Building Type Square Feet Site Acres Building 1 Warehouse 190,503 10.16
Building 2 Warehouse 157,783 8.48
Building 3 R&D/Manufacturing 46,839 3.72
Total 395,125 22.36
Source: Architectural plans authored by HPA Architecture for Scannell Properties, provided by the City of Fremont, 2021.
Although the architectural plans for the Subject Site designate buildings 1 and 2 as “Warehouse” and building 3 as R&D/Manufacturing, a variety of tenants could potentially use the buildings for diverse manufacturing, R&D, warehouse, and distribution activities, as has occurred in similar development projects in Fremont.
MEMO ORGANIZATION
The remainder of this memo consists of the following sections:
1. Market and Development Viability Assessment : Provides detailed analysis and findings regarding the Subject Site’s market potential for retail or industrial development
2. Potential Economic and Fiscal Benefits of Proposed Industrial Use : Describes the likely economic and fiscal benefits associated with development of the site as proposed by Scannell Properties
4 City of Fremont General Plan, December 2011.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 6 MARKET AND DEVELOPMENT VIABILITY ASSESSMENT
The ability of the Subject Site to contribute economic and fiscal benefits for the City of Fremont will first depend on achieving build out of a new deve lopment project, and on the types of tenants that then occupy that project. Strategic Economics examined market conditions and trends to identify the Subject Site’s likelihood of succeeding as a retail development project versus an industrial development project. Strategic Economics also assessed the likely types of tenants that would occupy an industrial project at the site, based on Fremont’s market position within the Bay Area and recent development activity and tenanting trends.
Retail Market and Development Assessment
Strategic Economics assessed retail market conditions and trends to gauge the viability of the Subject Site for retail use. As with any development project, the success of a new shopping center depends on the ability of the site to attract and retain tenants capable of reliably paying sufficient rents to cover operating costs and the costs of land acquisition costs, financing costs, and construction costs. The market assessment focused on broader shifts in the retail marketplace due to the growth of e - commerce uses , the competitive retail supply currently serving the site, and site-specific characteristics that affect the site’s potential to succeed as a shopping center that attracts customers from a citywide or regional trade area.
BROADER RETAIL TRENDS IMPACTING DEVELOPMENT POTENTIAL AT THE SUBJECT SITE At the most basic level, growth in demand for additional retail space within a given “trade area” served by a shopping center is primarily driven by increases in spending power due to growth in additional households. This pattern explains the first major wave of shopping center development in Fremont and neighboring communities as their populations rapidly grew between 1960 and 1990. The retail industry has typically responded to any first wave of new development by building new shopping centers of various shapes and sizes depending on the population size and other existing competition already in the trade area.
Development of new shopping centers was also historically driven by evolution of the retail industry itself, as developers created new store and shopping center formats in response to changing demographic patterns, changing availability of consumer goods, and various profitability models for both retailers and real estate developers. In broad terms, this pattern can be viewed as a continuum going from the invention of department stores in the late 19th century, to shopping centers in the early 1920s, to shopping malls in the 1950s, to the big box centers of the 1990s, etc. For many years, changing retail trends drove construction of new shopping centers or projects as much as new consumer demand did. In some cases, new shopping centers would merely capture demand from an existing shopping district or center, sometimes leaving the older facility largely vacant.
Today, the internet is the primary transformational force affecting the retail industry. While total retail sales in the United States increased three percent in 2020, e-commerce sales grew by 32 percent5; e-commerce growth was especially high in 2020 due to the COVID- 19 pandemic, but the relatively
5 Quarterly E-Commerce Report, United States Census Bureau, 2020.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 7 rapid growth of e -commerce sales continued a long -term trend of an increasing share of total retail sales going to online stores. E-commerce still accounts for only about 1 3 percent of total retail sales in the United States,6 but the overall demand for retail space in both existing and new retail area s is starting to decline. In addition, because the retail development industry kept building new format shopping centers without necessarily closing older centers, total retail space inventory is widely considered within the commercial real estate industry to be overbuilt.
As a result of these converging trends, retail expansion in brick -and-mortar space is happening in limited and specific locations that offer extraordinary household growth or access to households, and many existing retail centers are contracting in size. Former retail spaces are being used for many non- retail uses including office space, gyms, medical facilities, and housing. Moreover, even successful shopping malls are looking to diversify their land use mix to include new uses such as housing, offices, hotels, and a wider range of dining options, etc., as is occurring at the former Vallco Shopping Mall in Cupertino.
Prior to the onset of the COVID- 19 pandemic, the biggest growth in retail activity was in a category commonly referred to as experiential retail. This trend reflects the consumer preferences of younger households who tend to spend less money on goods and more money on “experiences” including services, including personal services, restaurants, and drinking establishments. But places that cater to this experiential retail also require having the right kind of physical environment: a place that is lively and pedestrian-oriented so people can park their cars and walk to their destinations.
These converging retail industry trends are playing out at the local level in Fremont, suggesting ongoing challenges for adding retail space and supporting development of new shopping centers:
• Total s quare feet of retail space per household is declining in Fremont , neighboring communities, and the Bay Area as a whole: Based on retail inventory data from CoStar and household data from the U.S. Census, the square feet of retail space per household in Fremont declined from 58 to 55 from 2015 to 2019 (Figure 5). Within the combined area of Fremont, Milpitas, Newark, and Union City —which better represents a larger trade area that would be served by a regional retail center at the Subject Site—square feet per household declined from 92 to 87 over the same period. Within Alameda and Santa Clara counties combined, square feet per household fell from 127 to 123. Although this is a relatively short time period , the declines in retail space per household consistently occurred across all geographies.
FIGURE 5: CHANGE IN RETAIL INVENTORY (SQUARE FEET) PER HOUSEHOLD, 2015 AND 2019 Sq. Ft. of Retail Space Per Household
Location 2015 2019
Fremont 58 55
Fremont, Milpitas, Newark, Union City 114 108
Alameda County 134 132
Santa Clara County 121 120
Source: CoStar, 2021; US Census ACS 5-Year Estimates, 2015 and 2019; Strategic Economics, 2021.
• Reinvestment at shopping centers near Fremont includes additions of non-retail uses: Recent reinvestment activity at shopping centers in and near Fremont demonstrates the retail
6 “E-Commerce Retail Sales as a Percent of Total Sales,” third quarter of 2021, FRED database, Federal Reserve Band of St. Louis.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 8 industry’s response to declining demand per household through conversion of space to other uses, including placement of addi tional housing and jobs at shopping centers to provide additional local demand for the remaining retail space. For example, t he owner of NewPark Mall in Newark (approximately one mile from the Subject Site) is undertaking development of over 300 housing units and replacement of two former anchor tenant spaces and a portion of the mall with a Costco store.
COMPETITIVE RETAIL SUPPLY
Development and tenanting of a new shopping center at the Subject Site will require competing for demand against the existing supply of shopping centers serving customers from within the same trade area. Large shopping centers, such as regional malls, lifestyle centers, power centers, and community centers, serve a large trade area by drawing customers from within three miles or beyond. A range of retail centers exists within Fremont and along the I -880 corridor, each serving a unique trade area.
The retail center categories are described in more detail below and summarized in Figure 6.
Figure 7 shows the locations of regional ma lls, power centers, and community centers located within approximately five miles of the Subject Site . Figure 8 also includes neighborhood shopping centers within an approximate three-mile area. Definitions of these shopping center types follow:
• Regional and super regional malls are enclosed shopping malls that include large anchor stores such as Macy’s. Regional malls typically consist of at least 400,000 square feet of space and serve a trade area of approximately 5 to 15 miles. Malls near the Subject Site include NewPark Mall approximately one mile away, and the Great Mall in Milpitas. • Power centers (often known as “big box” centers) are characterized by several large anchor stores, such as discount department stores, and are usually between 250,000 to 600,000 square feet. Examples near the Subject Site include Pacific Commons less than three miles away, the Fremo nt Hub, and McCarthy Ranch Marketplace in Milpita s. The trade area for a power center is typically between 5 to 10 miles.
• Community centers typically serve trade areas of between 3 and 6 miles and are often anchored by grocery stores or “big box” stores. These centers are usually between 125,000 to 400,000 square feet in size. Examples near the Subject Site include the collection of shopping centers and Walmart adjacent to the Subject Site, and Gateway Plaza near the Fremont BART station.
• Neighborhood centers typically serve trade areas of 3 or fewer miles and consist of 30,000 to 125,000 square feet. These centers are typically anchored by a grocery store and consist of convenience retail serving the day -to-day needs of nearby residents, such as dry cleaning, pharmacies, etc.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 9 FIGURE 6. TYPICAL U.S. SHOPPING CENTER TYPES AND CHARACTERISTICS Type of
Shopping Center
Typical
Size (sf)
Acres Typical Anchors Trade Area
Size/
Drive-time
Examples
Regional and
Super Regional
Malls
400,000 to
800,000
40 to
100
General merchandise or fashion-
oriented anchors, may include
department stores, mass
merchants, and/or fashion apparel
5-15 miles/
15-20
minutes
NewPark Mall,
Great Mall
(Milpitas)
Power Centers 250,000 to
600,000
25 to
80 Category-dominant anchors, often
in more than one freestanding
structures, with only a few small
tenants
5-10 miles/
15-20
minutes
Pacific Commons,
McCarthy Ranch
Marketplace
(Milpitas)
Community
Center
125,000 to
400,000
10 to
40 General merchandise or
convenience-oriented anchors,
may include discount stores,
grocery stores, drug stores, and/or
large specialty stores (home
improvement/ furnishings, sporting
goods, etc.)
3-6 miles/
10-15
minutes
Walmart and
collection of
shopping centers
near Subject Site,
Gateway Plaza
Neighborhood
Center
30,000 to
125,000
3 to 5 Convenience-oriented, typically
anchored by a grocery and/or drug
store
3 miles/
5-10
minutes
Sundale Shopping
Center (4949
Stevenson Blvd)
Source: International Council of Shopping Centers, January 2017; CoStar, January 2017; Strategic Economics 2021.
The Subject Site ’s surrounding trade area is already well served by existing regional retail and therefore not well-positioned to attract a new regional shopping center, as envisioned by the existing Regional Commercial land use designation. As shown in Figure 7, The Subject Site is already well- served by regional retail destination s, including NewPark Mall less than a mile away and Pacific Commons less than two miles away, both of which feature comparable freeway access and visibility.
The Subject Site is also not well positioned to attract local-serving retail uses, given the existing supply of retail space meeting these needs. As shown in Figure 8, multiple “neighborhood centers” exist within the one mile and three mile radii of the Subject Site. These centers already include a range of grocery store anchors targeting different demographic segments, including FoodMaxx, Grocery Outlet, Lucky, Trader Joe’s, Lucky, Safeway, and Whole Foods.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 10 FIGURE 7: EXISTING SUPER REGIONAL MALLS, POWER CENTERS, AND COMMUNITY CENTERS NEAR SUBJECT SITE
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 11 FIGURE 8: ALL RETAIL SHOPPING CENTERS LOCATED ADJACENT TO SUBJECT SITE
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 12 RETAIL MARKET CONDITIONS
Although broader retail trends and the existing supply of space serving the Subject Site suggest challenges for developing a new shopping center at the Subject Site, Strategic Economics also examined local real estate market data to assess the strength of overall demand for new retail space.
Existing retail space in and near Fremont performs well, though inventory growth and absorption of space have been relatively slow over the past decade. As shown in Figure 9, overall retail vacancy rates in Fremont have held stable at a healthy four to seven percent since 2011, only exceeding this range during the COVID -19 pandemic. Overall retail rents also rose during that period. A nnual net absorption of retail space (space occupied minus space vacated) has been uneven, with negative absorption in 2017 and 2019 and minimal net absorption in 2014, 2015, and 2020 (although absorption was likely constrained by limited availability of vacant space) . Retail inventory has not significantly grown in Fremont since 2014 due to a lack of de velopers pursuing and completing new projects. Based on these trends over the last several years (including the period prior to the COVID-19 pandemic) Fremont’s existing retail space is successfully attracting tenants at increasing rental rates.
FIGURE 9: FREMONT RETAIL VACANCY RATE
Source: CoStar, 2021; Strategic Economics, 2021.
FIGURE 10: FREMONT RETAIL INVENTORY (SQUARE FEET)
Source: CoStar, 2021; Strategic Economics, 2021.
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%Retail Vacancy Rate
3,200,000
3,300,000
3,400,000
3,500,000
3,600,000
3,700,000
3,800,000
3,900,000
4,000,000
4,100,000
4,200,000
4,300,000Square Feet
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 13 FIGURE 11: NET ABSORPTION OF RETAIL SPACE IN FREMONT (SQUARE FEET)
Source: CoStar, 2021; Strategic Economics, 2021.
RETAIL SITE ASSESSMENT
While current retail industry trends and local indicators suggest weak retail development potential at the Subject Site, site-specific location and physical characteristics also indicate how well the Subject Site could successfully function as a shopping center. Retail tenants, especially retail tenants serving a large regional trade area, generally prefer sites with high visibility, locations with high automobile traffic volume, easy accessibility, and co-location with adjacent complementary tenants.
The Subject Site’s greatest strength as a potential shopping center consist s of access via I-880 and Stevenson Boulevard . The Subject Site is readily accessible via an I -880 off -ramp and Stevenson Boulevard’s high automobile traffic volumes —strengths leveraged by the existing Walmart located across from the Subject Site.
The Subject Site’s weaknesses as a potential shopping center include limited visibility from I-880 and lack of immediate proximity to larger concentrations of complementary retail uses. Unlike the Walmart across Albrae Street, the Subject Site is not located directly adjacent to I-880 and has relatively limited opportunities for signage visible from the freeway. The Subject Site also lacks immediate proximity to the largest concentrations of complementary retail offerings at NewPark Mall and Pacific Commons, requiring the site to compete with those areas for shoppers rather than take advantage of co-location benefits.
SUMMARY OF KEY RETAIL CONCLUSIONS
Although existing shopping centers are generally performing well in Fremont, multiple significant challenges exist for retail development at the Subject Site:
• The rise of e-commerce is leading to a reduction in the square feet of retail space required per household, a trend reflected in declining square feet of space per household in Fremont, surrounding communities, and in Alame da and Santa Clara Counties. Instead, trends favor reinvestment at existing retail centers, including incorporation of non -retail uses , often by removing existing retail space.
• A future shopping center at the Subject Site would need to compete with a substantial existing supply of retail serving customers from within the same regional and local trade areas.
(150,000)
(100,000)
(50,000)
0 50,000
100,000
150,000
200,000
250,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD
Square Feet
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 14 • While the Subject Site itself does feature positive attributes as a retail location, including excellent regional access via I-880, the site lacks immediate proximity to complementary and larger retail concentrations at NewPark Mall and Pacific Commons. As a result, a new shopping center at the site would need to compete with those centers rather than benefit from co - location.
Industrial Market and Development Assessment
The drivers of demand for an industrial development project differ from drivers of demand for a retail project. While a successful retail project depends on the ability to capture sufficient customer sales from within a competitive trade area, the success of an industrial development project relies on capturing demand from businesses seeking a preferred combination of access to their workforce, building/site configuration, power and other utilities, and/or ease of goods movement for the business inputs and outputs. The following findings assess potential industrial development and tenanting opportunities at the Subject Site based on market indicators of demand for new industrial space in Fremont and based on the factors that attract specific types of industrial tenants to Fremont.
INDUSTRIAL MARKET CONDITIONS AND DEVELOPMENT ACTIVITY IN FREMONT Strong demand for industrial space exists in Fremont , with low vacancy rates , increasing rents, and rapid absorption of new product. As shown in Figure 12, Fremont’s overall industrial vacancy rate was an exceptionally low three percent as of December 2021. While this low vacancy rate was partly th e result of strong demand for manufacturing, warehouse, and distribution space caused by the COVID - 19 pandemic, the vacancy rate trend shown in Figure 13 indicates that vacancy rates have remained at a low level in Fremont since 2015—particularly for manufacturing space. Figure 14 shows that absorption of industrial space has been limited in most recent years due to limited available inventory and very low vacancy rates. New space, however, is typically rapidly absorbed. The limited availability of space is causing rapid appreciation in rents for distribution and manufact uring space as tenants seek to outbid each other for limited available inventory (Figure 15).
FIGURE 12: FREMONT INDUSTRIAL INVENTORY, VACANCY RATES, AND RENTS, DECEMBER 2021 Building Type Inventory (sq. ft.) Vacancy Rate (%) Rent (monthly, triple net) All Industrial 28,967,361 3.0% $1.56
Manufacturing 11,200,430 2.1% $2.06
Warehouse 15,818,767 3.6% $1.34
Distribution 1,344,711 no data no data
Flex Space 16,944,878 9.9% $1.49
R&D 9,217,272 8.3% $1.64
Source: CoStar, 2021; Strategic Economics, 2021.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 15 FIGURE 13: VACANCY RATES BY SUB-CATEGORIES OF INDUSTRIAL AND R&D/FLEX SPACE, FREMONT, 2010 TO DECEMBER 2021
Source: CoStar, 2021; Strategic Economics, 2021.
FIGURE 14: ABSORPTION TRENDS BY SUB-CATEGORIES OF INDUSTRIAL AND R&D/FLEX SPACE, FREMONT, 2010 TO DECEMBER 2021
Source: CoStar, 2021; Strategic Economics, 2021.
FIGURE 15: AVERAGE ASKING RENTS BY SUB-CATEGORIES OF INDUSTRIAL AND R&D/FLEX SPACE, FREMONT, 2010 TO DECEMBER 2021
Note: Rents displayed on a triple-net basis. Rents for “Distribution” space are not shown due to limited available data.
Source: CoStar, 2021; Strategic Economics, 2021.
0%
5%
10%
15%
20%
25%
30%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD
Vacancy Rate
Flex/R&D
Warehouse
Manufacturing
(1,500,000)
(1,000,000)
(500,000)
0 500,000
1,000,000
1,500,000
2,000,000
2,500,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD
Square Feet
Manufacturing Warehouse Distribution Flex/R&D
$-
$0.50
$1.00
$1.50
$2.00
$2.50
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD
Monthly Asking Rent
Manufacturing
Flex/R&D
Warehouse
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 16 Industrial development activity and interest is also strong in Fremont, with growth in building inventory and multiple development proposals for additional industrial space. Due to delivery of new industrial development projects, the inventory of industrial space in Fremont grew by 4.2 million square feet, or 18 percent, from 2011 to 2021 . This inventory growth included a diverse mix of industrial sub - categories; real estate data service CoStar classified 13 percent of this new inventory as manufacturing space, 61 percent as distribution space, and 26 percent as warehouse space. Loc al brokers interviewed for this study verified that demand is exceptionally strong for industrial space in Fremont. Developers are pursuing multiple new industrial projects in Fremont to meet this demand ; as of November 2021, the City of Fremont tracked ten industrial development projects representing
8.6 million square feet of additional space.
FIGURE 16: CHANGE IN INDUSTRIAL AND R&D/FLEX INVENTORY BY SUB-CATEGORY OF SPACE, FREMONT, 2010 TO DECEMBER 2021
Note: New Fremont industrial space classified by CoStar as “Warehouse” typically actually includes a mix of manufacturing, R&D, and warehousing/distribution activities, as occurred at the Pacific Commons South project reflected in the above data as warehouse space.
Source: CoStar, 2021; Strategic Economics, 2021.
DRIVERS OF DEMAND FOR INDUSTRIAL SPACE IN FREMONT
Strategic Economics examined Fremont’s industrial market positioning and tenanting trends to assess the likely mix of tenants that would occupy new industrial space at the Subject Site, therefore determining whether the space would be used for warehouse and distribution, advanced manufacturing, or R&D activities. As with any community, Fremont offers a unique mix of assets and advantages that influence the types of industrial business tenants seeking space within the city.
Fremont—and to a lesser extent Newark and Milpitas —occupies a unique regional niche in the types of businesses seeking industrial space , with a focus on research and development, product prototyping, and specialized smaller -scale production. Local brokers interviewed for this study noted that Fremont competes for industrial tenants within a market area consisting of Fremont, Newark, Milpitas, and northern San Jose. However, Fremont was cited as the m ost desirable location for R&D and advanced manufacturing, particularly for pharmaceuticals, biotechnology, medical device manufacturing, electronic equipment, computer technology, and sustainability technologies and products. Examples of these businesses include Bloom Energy (renewable energy), Cepheid (medical devices), Sana Biotechnology, Enovix (energy storage), Lam Research (semiconductors), and Quanta Computer (electronics manufacturing). Brokers noted that demand for advanced manufacturing and R&D space is strongest in the area between Stevenson Boulevard and Dixon Landing Road —an area including the Subject Site.
0 2,000,000
4,000,000
6,000,000
8,000,000
10,000,000
12,000,000
14,000,000
16,000,000
18,000,000
20,000,000
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 YTD
Square Feet
Flex/R&D
Warehouse
Manufacturing
Distribution
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 17 FIGURE 17: TYPICAL INNOVATION CYCLE OF A NEW MANUFACTURED PRODUCT
Source: Strategic Economics, 2021.
Recent tenanting activity and venture capital investment provide further evidence of Fremont’s specialization in R&D and advanced manufacturing:
• As shown in Figure 18, 24 out of 33 leases signed for spaces larger than 50,000 square feet in Fremont in the last five years were for businesses in the life sciences/manufacturing and technology/manufacturing sect ors, accounting for nearly three -quarters of all leases. These leases accounted for the majority of all square feet leased as well. The remaining leases were signed by warehouse and logistics users.
FIGURE 18: MAJOR* NEW LEASES BY INDUSTRY SECTOR IN FREMONT, 2017 TO 2021 Sector Number of Leases Square Footage
Life Sciences/ Manufacturing 7 794,901
Technology/ Manufacturing 17 1,929,657
Warehouse/ Logistics 9 2,420,607
Total 33 5,145,165
*Data reflects leases for space exceeding 50,000 square feet.
Source: City of Fremont, 2021; CoStar, 2021; Strategic Economics, 2021.
• Fremont and surrounding communities attract substantial venture capital investment in computer technology, the biomedical/biotechnology industry, and CleanTech. As shown in Figure 19, the “Southern Alameda” subarea attracted approximately $1.5 billion in venture capital investment in 2020, which accounted for nearly a quarter of all venture capital investment in the East Bay.
1. Concept/Early R&D
2. R&D and Design
3. Advanced/pilot
manufacturing
4. Large-scale
manufacturing
Fremont’s
primary niche
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 18 FIGURE 19: VENTURE CAPITAL INVESTMENT BY CATEGORY AND EAST BAY SUBAREA, 2020
Source: “East Bay Forward,” East Bay EDA, September 2021 (report authored by Strategic Economics); Pitchbook, 2021.
Fremont offers several competitive assets that support the city’s ongoi ng strength in attracting innovation-oriented R&D and advanced manufacturing businesses to the city’s industrial lands:
• Access to a workforce with diverse skills, education, and training: As seen below in Figure 20, Fremont’s location provides immediate access to the Bay Area’s highest concentrations of workers with advanced degrees, including in Fremont itself and in Silicon Valley communities across the Dumbarton Brid ge. At the same time, Fremont enjoys equally strong access to a large population of workers to the east and north with a diverse range of education and specialized skills that are required for operating labs and specialized production equipment.
• Integration with Silicon Valley businesses via the Dumbarton Bridge: The Dumbarton Bridge provides direct access to the Bay Area’s primary cluster of innovation -oriented technology businesses in Silicon Valley. The bridge essentially integrates Fremont within this innovation ecosystem, allowing Fremont to provide the “scale -up” space for manufacturing, R&D, and laboratory uses. Tesla is an example of this symbiotic relationship; the company’s primary corporate offices and former headquarters are located in Palo Alto, while manufacturing occurs in Fremont.
• Availability of modern industrial buildings and industrial land: Fremont’s inventory of newer industrial buildings and industrial development opportunities better meet building configuration, access, and power needs of innovation-oriented tenants compared to the older building stock of communities such as San Leandro.
• Efficient City permitting and approvals processes: Brokers interviewed for this study noted that Fremont also competes for innovation -oriented industrial tenants based on responsive,
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 19 efficient, and easy to navigate permitting and approvals processes relative to neighboring communities.
FIGURE 20: ADVANCED DEGREE CONCENTRATION IN BAY AREA, 2017
Fremont also attracts demand for warehouse and distribution space based on proximity to households and businesses and the city’s location along the I -880 corridor. Demand for warehouse and distribution space continues to grow in response to e -commerce distribution needs, with demand especially surging during the COVID -19 pandemic. As shown in Figure 18, just under half the square feet of major leases signed in Fremont in the past five years were for warehouse and distribution space. Fremont competes for warehouse and distribution tenants based on the city’s location along the I-880 corridor (including access to the Port of Oakland) and access to a large number of businesses and residents. However, surrounding communities offer similar accessibility at potentially lower costs due to reduced competition with technology businesses for industrial space.
SUBJECT SITE ASSESSMENT FOR INDUSTRIAL USE
An industrial development project at the Subject Site is likely to succeed in attracting tenants due to general demand for new modern industrial space, freeway access, and convenient access to ex isting amenities. Local brokers interviewed for this study believed that the Subject Site would be successful in attracting and retaining industrial tenants due to strong demand for industrial space in Fremont, convenient workforce and goods movement acces s along I- 880, and the existence of restaurant, grocery, and other amenities for workers at the adjacent shopping centers and Walmart. Brokers noted
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 20 that demand is especially strong for buildings between 100,000 and 200,000 square feet; Scannell Properties’ current proposal includes two buildings within this range. Brokers noted that Pacific Commons is likely to be slightly more desirable than the Subject Site for industrial tenants, primarily because of Pacific Commons’ larger cluster of businesses and worker amenities.
The Subject Site is well-positioned to attract advanced manufacturing and R&D tenants, as well as warehouse and distribution uses. Local brokers indicated that the Subject Site’s location will allow it to function equally well for either use, suggesting that tenanting of new space at the site would follow recent patterns that include both distribution and R&D or advanced manufacturing uses.
KEY INDUSTRIAL CONCLUSIONS
Demand for industrial space is strong in Fremont, including R&D, advanced manufacturing, and warehouse and distribution space. Fremont is especially uniquely well positioned to attract R&D and advanced manufacturing tenants due to the city’s direct access to Silicon Valley businesses via the Dumbarton Bridge and the city’s access to a workforce with a diverse range of education and specialized skills. The city’s ability to attract R&D and advanced manufacturing uses is demonstrated by both recent tenanting trends and significant venture capital investments in innovation -oriented businesses located in and near the city.
New industrial space at the Subject Site would be well-positioned to attract a diverse set of businesses, including businesses engaged in R&D, advanced manufacturing, and warehouse and distribution activities.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 21 POTENTIAL ECONOMIC AND FISCAL BENEFITS OF PROPOSED
INDUSTRIAL USE
Strategic Economics assessed the likely economic and fiscal benefits associated with buildout of Scannell Properties’ industrial development proposal for the Subject Site. Based on t he preceding analysis of likely tenant types that would occupy industrial space at the Subject Site, Strategic Economics assumed the following breakdown of uses within the three proposed buildings:
FIGURE 21: BUSINESS ACTIVITY ASSUMPTIONS APPLIED IN THE ECONOMIC AND FISCAL ANALYSIS Building Use Square Feet
Building 1 Manufacturing 190,503
Building 2 Warehouse 157,783
Building 3 R&D 46,839
Total 395,125
Source: Architectural plans authored by HPA Architecture for Scannell Properties, provided by the City of Fremont, 2021; Strategic Economics.
Employment and Workforce Opportunities
This section summarizes the wages, occupations, and entry-level educational requirements for jobs at businesses matching the manufacturing, warehouse, and R&D uses assumed to locate at the Subject Site. The results are based on recent data for the San Jose -Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA); the analysis applied data for this MSA since Fremont’s economy is more closely related to Silicon Valley than the larger East Bay MSA consisting of Alameda and Contra Costa Counties.
The text box on the following page describes t he methodology used for this analysis . Strategic Economics estimated workforce outcomes including the number of jobs, worker occupation mix, average worker incomes, and entry-level education requirements for new jobs at Scannell Properties’ proposed development project.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 22 OVERVIEW OF METHODOLOGY
The analysis summarized in this memorandum ties land uses (manufacturing, warehouse, and R&D) to industries in order to estimate the typical wages, occupational mix, and entry-level educational requirements of jobs generated by different land uses. This makes it possible to draw broad conclusions about the likely occupations and entry- level educat ional requirements of new jobs associated with the development proposal, based on patterns in the surrounding region. The data sources used, and steps followed for this analysis, are described below.
Data sources. Findings are based on data provided by th e California Economic Development Department (EDD) for the San Jose-Sunnyvale-Santa Clara MSA. Two main EDD data sources were used:
• Findings related to industries, wages, and occupations are based on the EDD Industry to Occupation Matrix for the first quarter of 2020.
• Findings related to entry -level educational requirements are based on the EDD Occupation Projections dataset for 2016-2026. Note that the data on entry-level educational requirements by occupation may not always reflect what is required of new workers in a highly competitive job market such as the San Francisco Bay Area. Nonetheless, when summarized at a high -level, this data is helpful to assess the general education and skills required for different occupational categories.
Step 1. Define land use categories by industry groups. As a first step, the three land uses assumed for the development proposal were defined based on the following industry groups, as categorized by the North American Industry Classification System (NAICS):
• Manufacturing: Printing and Related Support Activities (323), Chemical Manufacturing (325), Nonmetallic Mineral Product Manufacturing (327), Fabricated Metal Product Manufacturing (332), Machinery Manufacturing (333), Computer and Electronic Product Manufacturing (334), Electrical Equipment and Appliances (335), Transportation Equipment Manufacturing (336), Furniture and Related Product Manufacturing (337), Miscellaneous Manufacturing (339) • R&D: Computer Systems Design and Related Services (5415), Scientific Research and Development Services (5417)
• Warehouse: Wholesale Trade (42), Couriers and Messengers (492), Warehousing and Storage (493), Electronic Shopping and Mail-Order Houses (4251) Step 2. Link industry groups to occupations and wages (MSA level). Based on these industry group definitions, the Industry to Occupation Matrix dataset was used to associate each land use with an occupational mix, categorized using major Standard Occupational Classification (SOC) codes. This same dataset was also used to associate each land use to an average annual wage. In both cases, results obtained are reflective of the MSA overall.
Step 3. Link occupations to entry-level educational requirements (MSA level). The occupational mix of each land use was then linked to the EDD Occupation Projections dataset in order to obtain the typical mix of educational levels required by major SOC Code. Again, these results are reflective of the MSA overall.
Step 4. Apply the MSA’s relative shares of occupations by land uses and educational requirements by land uses to the Specific Plan area job estimates. The relative shares of occupations and educational requirements by land use derived from the MSA datasets were applied to the number of jobs by land use for the overall development proposal. This made it possible to estimate the projected number of jobs by occupation and entry-level education required.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 23 ON-SITE JOBS
Based on general job density assumptions by land use, Strategic Economics estimated that approximately 650 job s would be associated with the development proposal. The job density assumptions and jobs by land use are shown in Figure 22.
FIGURE 22: EMPLOYMENT DENSITY ASSUMPTIONS AND ON-SITE JOBS BY LAND USE Land Use Square Feet
Jobs per Sq. Ft.
Assumption (a) New Jobs
Manufacturing 190,503 500 381 R&D 46,839 400 117 Warehouse 157,783 1,000 158 Total 395,125 n/a 656
a) The analysis applied generalized assumptions of ranges of jobs per square foot, based on Strategic Economics’ ongoing review of available literature and past project experience. Actual outcomes will depend on the specific tenants that occupy any future industrial space at the site.
Source: Strategic Economics, 2021.
OCCUPATION MIX
The development proposal for the Subject Site would accommodate a diverse mix of jobs by occupation, with the greatest numbers of jobs in professional technical and production occupations.
Figure 23 shows the breakdown of new jobs by occupation for each of the three land use outcomes at the Subject Site. Of the 656 jobs at the Subject Site, 24 percent would consist of computer and mathematical occupations, 14 percent in production occupations, 12 percent in architecture and engineering occupations, and 12 percent in management occupations. The remaining 38 percent of jobs would consist of jobs in a variety of occupations.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 24 FIGURE 23: PROJECTED NEW JOBS BY OCCUPATION BY LAND USE FOR SCANNELL PROPERTIES’ SUBJECT SITE DEVELOPMENT PROPOSAL Major Occupation Category
Manufacturing R&D Warehouse
# of Jobs % of Jobs # of Jobs % of Jobs # of Jobs % of Jobs Management 42 11% 19 16% 16 10% Business and Financial Operations 36 9% 11 9% 12 7% Computer and Mathematical 89 23% 58 50% 13 8% Architecture and Engineering 63 16% 9 7% 6 4% Life, Physical, and Social Science 2 0% 4 4% 0 0% Legal 1 0% 1 0% 0 0% Arts, Design, Entertainment, Sports, and Media 5 1% 2 2% 1 1% Sales and Related 15 4% 6 5% 31 20% Office and Administrative Support 28 7% 6 5% 25 16% Construction and Extraction 1 0% 0 0% - 0% Installation, Maintenance, and Repair 6 2% 0 0% 6 4% Production 86 23% 1 1% 7 5% Transportation and Material Moving 8 2% 0 0% 40 26% Total 381 100% 117 100% 158 100% Note: Columns may not sum due to rounding.
Source: California Economic Development Department for the San Jose-Sunnyvale-Santa Clara MSA, Industry to Occupation Matrix for Q1 2020; Strategic Economics, 2021.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 25 AVERAGE INCOME
Potential new jobs at the Subject Site are also associated with a variety of average annual wages, with overall average wages highest for R&D and manufacturing jobs. Figure 24 shows the average annual wages associated with the mix of occupations within each major occupation category. The range of wages is especially wide with manufacturing jobs; for example, the 23 percent of jobs in computer and mathematical occupations pay an average wage of $120,000, while the 23 percent of jobs in production occupations pay $48,000. The overall average annual wage for R&D occupations is highest at $141,000, followed by $95,000 for manufacturing, and $78,000 for warehouse.
FIGURE 24: AVERAGE ANNUAL WAGES FOR OCCUPATIONS BY LAND USE FOR SCANNELL PROPERTIES’ SUBJECT SITE
DEVELOPMENT PROPOSAL
Major Occupation Category
Manufacturing R&D Warehouse
Share of
Manufacturing
Jobs
Mean
Annual
Wage
Share
of R&D
Jobs
Mean
Annual
Wage
Share of
Warehouse
Jobs
Mean
Annual
Wage
Management 11% $171,808 16% $206,487 10% $149,319
Business and Financial
Operations 9% $95,115 9% $103,371 7% $99,186
Computer and Mathematical 23% $120,019 50% $142,702 8% $125,659 Architecture and Engineering 16% $99,167 7% $148,498 4% $97,002 Life, Physical, and Social Science 0% $93,273 4% $100,071 0% $87,252 Legal 0% $235,866 0% $228,228 0% $241,767
Arts, Design, Entertainment,
Sports, and Media 1% $88,486 2% $102,911 1% $75,281
Sales and Related 4% $98,769 5% $112,468 20% $83,236
Office and Administrative Support 7% $53,172 5% $60,154 16% $51,971 Construction and Extraction 0% $55,625 0% - 0%
Installation, Maintenance, and
Repair 2% $61,342 0% $60,215 4% $60,936
Production 23% $48,072 1% $55,331 5% $49,484
Transportation and Material
Moving 2% $46,246 0% $44,847 26% $44,013
Calculated Total, All Occupations 100% $95,284 100% $141,170 100% $77,909 Source: California Economic Development Department for the San Jose-Sunnyvale-Santa Clara MSA, Industry to Occupation Matrix for Q1 2020; Strategic Economics, 2021.
ENTRY-LEVEL EDUCATION REQUIREMENTS
Entry-level education requirements for jobs also vary significantly by land use, with manufacturing jobs providing the greatest diversity of opportunities for workers at a variety o f education levels. As shown in Figure 25, an estimated 79 percent of jobs in the R&D space would require a bachelor’s degree or higher, compared to 55 percent in the manufacturing space and 29 percent in the warehouse space.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 26 FIGURE 25: ENTRY LEVEL EDUCATION REQUIREMENTS BY LAND USE
Source: California Economic Development Department for the San Jose-Sunnyvale-Santa Clara MSA, Industry to Occupation Matrix for Q1 2020; California Economic Development Departm ent for the San Jose- Sunnyvale-Santa Clara MSA Occupation Projections for 2016-2026; Strategic Economics, 2021.
Fiscal Contributions to the City of Fremont
Strategic Economics also estimated public gross revenues associated with Scannell Properties’ proposed industrial development project at the Subject Site. Estimated annual recurring revenues included property tax (accruing both to Fremont and other applicable tax jurisdictions), sales tax, and business license tax. The analysis estimated these revenues f or a single year upon full buildout and stabilized occupancy of the development project, as well as a ten -year projection of these revenues.
Strategic Economics also estimated one -time impact fee revenue with assistance from the City of Fremont. All dollar amounts are expressed in 2021 dollars unless stated otherwise.
SECURED PROPERTY TAX
The proposed industrial development project at the Subject Site is estimated to generate approximately $1.2 million in annual secured property tax revenue, with the City of Fremont receiving $159,000 of this revenue and the Fremont Unified School District receiving $282,000 of this revenue.
The distribution of this property tax is shown in Figure 26. This property tax revenue reflects revenue based on the assessed value of “secured” property (i.e., the value of land and improvements). The City of Fremont would also receive additional unsecured property tax revenue levied on the value of property such as business fixtures and equipment; unsecured property tax revenue could vary widely depending on the types of businesses that locate at the Subject Site, but these revenues could be significant for some manufacturing businesses. If the industrial development project does not move forward and the site instead remains vacant, the City of Fremont would only receive minimal property taxes based on the assessed value of the vacant land. The following assumptions were incorporated in the analysis:
• The analysis assumed an assessed value of the property at $271 per square foot of building area. This valuation was based on an estimated total cost of land and the hard costs of improvements provided by Scannell Properties. For additional context, a review of industrial property sales transactions in Fremont in 2019 and 2020 , including older properties and unimproved properties, found average sales prices per square foot were $244 and $248, 0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Manufacturing R&D Warehouse
Percent of Jobs
Doctoral or professional degree
Master's degree
Bachelor's degree
Associate's degree
Some college, no degree
Postsecondary non-degree award
High school diploma or equivalent
No formal educational credential
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 27 respectively; significant industrial property sales transactions in Fremont in 2021 reflected a range of sales price per square foot from $212-$576 with an average price of $342. • The applicable overall ad valorem tax rate for all applicable jurisdictions is 1.1609 percent.
Fremont receives 14.34 percent of the base one percent property tax rate as of 2021, after adjusting for Educational Revenue Augmentation Fund shifts to the state . Fremont also receives an additional .0050 percent of assessed value for voter-approved debt service.
FIGURE 26: PROPERTY TAX REVENUE ASSUMPTIONS AND CALCULATION Total Building Area in Square Feet 395,125
Assessed Value of Land and Improvements @ $271 Per Square Foot $107,078,875
Ad Valorem Property Tax
Ad Valorem Property Tax Revenue, All Jurisdictions
General Levy @ 1.0% of Assessed Value $1,070,789
Additional Voter-Approved Property Tax for Debt Service @ .1609% $172,290 Total Property Tax Revenue, All Jurisdictions $1,243,079
Ad Valorem Property Tax Revenue, City of Fremont Only
City of Fremont Share of General Levy @ 14.34% of 1% $153,596 City of Fremont Voter-Approved Property Tax for Debt Service @ .0041% $5,354 Total Property Tax Revenue, City of Fremont Only $158,950
Ad Valorem Property Tax Revenue, Fremont Unified School District Only Fremont Unified School District Share of General Levy @ 18.73% of 1% $200,575 Fremont Unified School District Voter-Approved Tax @ .0756% $80,951 Total Property Tax Revenue, Fremont Unified School District Only $281,526 Source: City of Fremont, 2021; Strategic Economics, 2021.
BUSINESS TAX
Businesses at the proposed industrial development project at the Subject Site were estimated to generate $16,051 in annual business tax revenue. Figure 27 shows the calculation basis, inputs, and business license tax revenue associated with each assumed land use at the development project.
FIGURE 27: ANNUAL BUSINESS TAX REVENUE AND CALCULATION BASIS Jobs Average Wage Calculation Basis
Annual Business Tax
Revenue
Manufacturing 381 $95,284 $.3 per $1,000 of gross payroll $10,891 R&D 117 $141,170 $.3 per $1,000 of gross payroll $4,955 Warehouse n/a n/a $65 per 50,000 sq. ft. $205
Total $16,051
Source: City of Fremont Fee Schedule, effective January 2, 2022; Strategic Economics, 2021.
SALES TAX
The proposed industrial development project at the Subject Site is estimated to generate $130, 391 in annual sales tax revenue for the City of Fremont. This estimate was based on sales tax data provided by HdL Companies via the City of Fremont, which showed that the City receives $.33 of sales tax revenue from “Industrial” businesses per square foot of industrial space in Fremont.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 28 The approximately 650 workers at the proposed industrial development project would also generate additional spending at retail adjacent to the Subject Site. For example, the International Council of Shopping Centers estimates that office workers in urban areas spent an average of $135 per week at retail and food establishments as of 2012.7 Workers at the Subject Site would support vitality of existing retail and generate additional sales tax revenue.
TOTAL TEN-YEAR OPERATING REVENUES
Based on the preceding estimates of property tax, business tax, and sales tax revenue, the City of Fremont is estimated to receive $305,400 in recurring annual revenue upon buildout and stabil ized occupancy of the proposed industrial development project, representing nearly $3.2 million over the following ten-year period (in 2021 dollars). Assumptions incorporated in the estimate included:
• Assessed values grow at two percent annually, based on the maximum allowable increase under Proposition 13
• Gross payroll increases by 3.49 percent annually for purposes of calculating business taxes, based on the average of quarterly year -over-year wage and salary increases tracked by the Bureau of Labor Statistics between 2017 and 2021 for the San Jose -San Francisco-Oakland region
• Sales tax revenue increases four percent annually, based on the California Department of Tax and Fee Administration average growth in All Other Outlet Sales ( a proxy for business-to- business transactions) in Fremont for the 2015 to 2020 period • Annual inflation of two percent, approximately based on the national average from 2011 to 2021
FIGURE 28: REVENUE, YEAR 1 BUILDOUT AND STABILIZED OCCUPANCY, AND TEN-YEAR REVENUE (2021 DOLLARS) Tax Revenue Source Year 1
Total, Years 1-10
(2021 Dollars)
Property Tax: All Jurisdictions $1,243,079 $12,430,787
Property Tax: Fremont Only $158,950 $1,589,499
Property Tax: Fremont Unified
School District Only $281,526 $2,815,261
Business Tax: Manufacturing and R&D $15,846 $169,289
Business Tax: Warehouse $205 $1,879
Sales Tax $130,391 $1,425,191
Total Annual Revenue, Fremont Only $305,392 $3,185,858
Source: Strategic Economics, 2021.
ONE TIME IMPACT FEE REVENUE AND DEVELOPER CONTRIBUTIONS The proposed industrial development project would provide $3.1 million in required one-time impact fees to mitigate the project’s impacts. The City of Fremont imposes impact fees to ensure development
7 “Office-Worker Retail Spending in a Digital Age,” International Council of Shopping Centers, 2012.
Market Assessment and Economic Benefits Analysis for Change of Use at 40517 Albrae Street 29 projects mitigate their own impacts on the City’s capital facilities, fire facilities, traffic, and affordable housing needs.
FIGURE 29: ONE-TIME IMPACT FEE REVENUE
Land Use
Capital
Facilities (per
1,000 sq ft)
Fire Facilities
(per 1,000 sq
ft)
Traffic (per
1,000 sq
ft)
Affordable
Housing (per
1,000 sq ft)
Total
(per
1,000
sq ft)
Total
per sq
ft Total Fees
Manufacturing $648 $385 $2,978 $4,170 $8,181 $8.18 $1,558,505 R&D $822 $488 $4,249 $8,340 $5,559 $5.56 $260,378
Warehouse $456 $377 $3,503 $4,170 $8,506 $8.51 $1,342,102 Total $3,160,985
Source: City of Fremont Fee Schedule, Effective January 2, 2022; Strategic Economics, 2021.
Scannell Properties will also be required to provide traffic signal and roadway enhancements and other on-site and off-site improvements, and has committed to provide a voluntary contribution of $500,000 to fund homeless services as a condition of project approval.