Silicon Valley property boom expected to persist
At the end of 2018, office vacancy rates were at 6.6 percent
SAN JOSE >> Silicon Valley’s office market, powered by the boom in the tech sector that has gobbled up a growing amount of property, has enjoyed shrinking vacancy levels and steadily rising rents, according to a new report from Colliers International.
At the end of 2018, office vacancy rates were at 6.6 percent, the lowest level of vacant office space since a 6.2 percent rate in 2015, according to a new report released by Colliers International as part of the Colliers Real Estate Trends 2019 conference that was held in downtown San Jose this week.
“Tech companies will continue to fuel this area’s expansion,” Reed Payne, executive managing director in the Colliers San Jose office, said during a presentation to the annual conference on Tuesday.
With the office market getting steadily tighter, asking rents for offices have risen to their highest levels in at least a decade, according to a Colliers report about the commercial real estate market in Silicon Valley, which the report defined as consisting primarily of Santa Clara County and Fremont.
Asking monthly office rents were $4.40 a square foot in 2018, the highest level reported in the Colliers study, which compiled statistics that extended back to 2008. In 2017, asking monthly office rents were $4.27 a square foot.
“The outlook for the office sector remains extremely positive as entrenched tech companies
commandeer world-class offices with amenity-rich campuses,” according to the Colliers report.
Commercial property owners are expected to be busy during 2019 constructing new office projects to meet the demand.
During 2019, a total of 6.7 million square feet of
office space, the equivalent of five regional shopping malls, is expected to be completed and come to market, the Colliers report predicted. An eye-popping 78.8 percent of that space, or 5.3 million square feet, is pre-leased, even before the buildings are complete.
“This type of commitment speaks volumes about the vitality and strength of the Silicon Valley commercial property market,” the Colliers report stated.
The Silicon Valley research and development market during 2018 boasted a 6.7 percent vacancy rate, the lowest since at least 2008. Asking rents were $2.28, the highest level during the decade.
“Similar to 2018, research and development product is expected once again to be the beneficiary of spillover office demand in 2019, due to a shortage of office supply in the Silicon Valley,” the report predicted.
Big corporate names led the parade of activity during 2018.
“Silicon Valley’s technology heavy hitters, most notably Apple, Facebook, LinkedIn and Google, contributed to the bulk of office leasing and sales activity,” according to Colliers.
The largest office deal of 2018 in Silicon Valley was undertaken by Facebook, which rented 1.05 million square feet in the under-construction Moffett Towers 2 office complex in Sunnyvale that’s being built by development company Jay Paul.
Colliers also took note of a major upswing in the office market in San Jose, driven in part by Google’s plans for a transit-oriented village in downtown San Jose near the Diridon train station and the SAP Center. Google has spent at least $310 million purchasing an array of properties in the area.
“2018 proved to be a breakout year for the San Jose office market,” the Colliers report stated. “Google is at the heart of the San Jose story. The Google effect is both indisputable and remarkable.”