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A Palo Alto, California, office building sold for almost $2K per SF, a purchase price nearly five times greater than that of the priciest deal in the market in the third quarter.
The deal illustrates the relative strength of Silicon Valley’s office market, which still sees demand from tech tenants as reduced activity in areas like downtown San Francisco means buildings are selling for deep losses.
The Douglas Living Trust bought the 30K SF building at 2555 Park Blvd. from real estate investment firm Kenson Ventures LLC for $58M, or $1,933 per SF, as first reported by the Silicon Valley Business Journal.
By comparison, the largest deal in the third quarter in Silicon Valley was the $21.5M trade of a Milpitas office building leased to the Stratford School. The transaction for the 53K SF building amounted to $405 per SF.
The Park Boulevard property brought in its high purchase price even though the entire thing is available for sublease, according to a Loopnet listing posted by Savills.
The Silicon Valley office market has maintained strength despite distress in surrounding markets, with Palo Alto leading the way, according to data collected by CBRE. The city led the market in average direct asking rents at $9.30 per SF. It was followed by other Silicon Valley cities Mountain View at $8.33 per SF and Sunnyvale at $6.65 per SF. In contrast, downtown San Jose and Santa Clara have average rates of $4.76 per SF and $4.87 per SF, respectively.
Palo Alto was also found to have a 50% rent premium, according to CBRE’s Tech-30 report. The data revealed that office lease rates in other leading tech submarkets carry a 10.5% premium on average compared to surrounding cities.
Leading tech submarkets, which are often located near universities, regularly feature rising rents, scant vacancy and high-quality office space, according to CBRE's data.
“Tech companies in the Bay Area may have been the first to embrace hybrid work models, but they also are leading the flight-to-quality,” CBRE Tech and Media Practice Managing Director Todd Husak said. “There continues to be high demand for well-located offices that are close to retail and restaurant amenities.”
He also said that with limited deliveries in the coming years, the demand for top-flight office space will soon outpace supply.
The Douglas Living Trust is likely a stand-in for a venture capital or private equity firm that has plans to occupy the building itself, the Business Journal reported, citing anonymous sources.
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