Seven Silicon Valley Stories To Watch
We got Cushman's San Jose office to tell us about the best water cooler gossip in Silicon Valley right now. (Don't worry we didn't tell them that gossip we know about you...)
1) Office is Tight and Rates Are High
That's the story in Mountain View, Palo Alto, and Sunnyvale. Cushman senior analyst Sethena Leiker has been crunching Peninsula and Silicon Valley stats for Cushman since 2011, following two years at a competing firm. There isn't a lot of available spec inventory that is going to deliver in the next two years that isn't already pre-leased. (Here she's with the brokerage's March Madness bracket, their annual event that raised $20,500 this year to benefit Make-A-Wish Foundation.) At least two biggies won't be in the leasing game as much; with Samsung and Apple building their respective campuses, they will likely cool down in their new campuses upon construction completion.
2) The New Office Worker
Above, Cushman associate director Jason Palda and senior director Rich Hardy, who work with a good mix of tech tenants. While Silicon Valley offices are planting flags in S.F., says Rich, S.F.-based workers don't want to be outside of the Valley HQ 100% of the time. That's because employees need that important face time with executives who can pull them along in their careers. They perhaps want to be in one place more than another for lifestyle reasons but they don't want to disappear from management and their radar screens. He knows S.F.-based Yelp is actively looking for some Valley space and is rumored to be very close to signing a deal in Palo Alto.
3) The Rise of Santa Clara
There's a lot attracting users to Santa Clara aside from Levi's Stadium (Silicon Valley Power and asking rates trailing northern submarkets are two). Retail and development projects still in the planning process from Related and Joe Montana are sure to drive more interest. Around the stadium is a four-to-six block radius that's going through a massive redevelopment, says Jason. Rich expects Santa Clara to become the true epicenter of Silicon Valley once development takes shape (historically, it's been Palo Alto). Another change? The Valley has long consisted of one-and-two-story sprawling campuses, says Rich, and only recently has it started to go upward instead of outward.
4) What's Hot in San Jose
Downtown San Jose has picked up and will continue to do so, says Sethena. (Above, San Jose Mayor Chuck Reed speaking at Bisnow's recent Silicon Valley event.) There's a lot of high-density housing delivering in the next year or two and it is currently the only real transit hub (a rare Valley perk). South San Jose is gaining the interest of true R&D tenants with lower-cost available space. During the last year there have been rumors of big tenants in the works; those transactions have yet to take place but there seems to be touring activity that could translate to real leases in the near future. In North San Jose, lots of asset repositioning is happening, giving tenants a lower-cost option than Santa Clara.
5) Industrial Space is Scarce
Much of what's available is dated, which would take some serious cash to bring it back to functioning product. This year, all eyes were on the brand new 574k SF Cherry Logistics Center in Newark, which is no longer an option (we reported on Amazon leasing the whole thing). Fremont's Milmont Commerce Center is delivering in the next few quarters, and Sethena is surprised that hasn't been pre-leased yet. Despite Silicon tech companies wanting to plunk manufacturing near office and R&D, they now have to look further away in East Bay.
6) Google is an Under-Told Story
The search engine giant is aggressively purchasing—and leasing—property in Mountain View, Palo Alto, and Sunnyvale. (Google just paid $98M for nine buildings in Mountain View.) Some of what Google is scooping up is under CBRE Global Investors, which isn't disclosing who it's buying on behalf of. But if you look at the acquisition path on a map it's pretty obvious it's for Google, Sethena says. She doesn't expect Google to occupy a lot of what it's buying in their current states, so expect a lot of redevelopment plays.
7) Displacement of Service Businesses
Google is buying old service center buildings on Charleston and Leghorn, with the long-term goal of converting those sites into housing for employees. Rich recently had a roofer doing work on his house and saw the Mountain View address on his card. Turns out Google had bought the roofer's building and he's going to have to move elsewhere. The industrial service sector base is quickly disappearing, and the big question is where it's going to go. Contracting businesses need to find cheap space—and a lot of it—so that's going to be an issue.