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As Silicon Valley Fills In, Investors, Tech Companies Buying A Piece Of North San Jose

North San Jose is quickly becoming a hot office market with several large land and building transactions completed this year. As other popular areas in Silicon Valley, such as Santa Clara and Mountain View, fill up, firms are turning toward San Jose as a viable option. North San Jose could experience more than 2.5M SF of absorption in 2018, according to a statement from NKF Capital Markets.

As Silicon Valley Fills In, Investors, Tech Companies Buying A Piece Of North San Jose
North First Commons in North San Jose

North San Jose, which will be a topic of discussion during Bisnow’s Silicon Valley State of the Market event July 26, has struggled with high vacancy rates in recent quarters, especially as new large offices have been delivered. During the first quarter, no new buildings were under construction and inventory was at 5.5M SF, according to data from Cushman & Wakefield.

Vacancy rates for North San Jose were at 17.7% during the first quarter, down from 24.2% during the fourth quarter. Year-to-date net absorption was at 308K SF during the first quarter, well above the year-to-date net absorption of 10K SF reported at the end of 2017.

Two of North San Jose's biggest sales of the year were over $100M. Lincoln Property Co. and PCCP paid $144.5M ($311/SF) for a seven-building office park in early June. The 464K SF Valley Technology Centre consists of two-story buildings and is on Zanker Road between East Plumeria Drive and East Trimble Road.

A JV between Ocean West Capital Partners and Hana Alternative Asset Management purchased four buildings that make up the 250K SF North First Commons at 2515, 2525, 2535 and 2545 North First St. The purchase price was $132.5M, according to the East Bay Times.

Three of the four buildings are currently occupied by eBay, which has plans to move into the fourth building. The company's lease at the property is for eight years.

NKF Capital Markets Vice Chairman Steve Golubchik, Executive Managing Director Edmund Najera, Directors Tim Walling and David Hosler facilitated the sale, while NKF Capital Markets Vice Chairman Ramsey Daya assisted the buyer in acquiring financing.

“The sale of North First Commons is a demonstration of the incredible demand for office product in North San Jose,” Golubchik said. “This demand will continue as more good news hits the market relating to new leasing activity.”

Tech Makes Big Buys, Signs Big Leases

As Silicon Valley Fills In, Investors, Tech Companies Buying A Piece Of North San Jose
110, 120 and 130 Holger Way in North San Jose

Tech companies are driving significant leasing and sales activity in the area. Micron Technology has leased a three-building, 541K SF campus at 110, 120 and 130 Holger Way, formerly owned by Brocade. Micron Technology plans to shift its 600 employees from Milpitas to the new campus, which can accommodate up to 1,000 employees, by early 2019. Cushman & Wakefield and Newmark Knight Frank arranged the lease.

Affiliates of Lane Partners bought the campus from Brocade for $226M at the end of 2017.

Bloom Energy plans to shift its headquarters from Sunnyvale to the 237 @ First complex, which was developed by South Bay Development. The fuel cell company has leased 108K SF of the 184K SF building at 4353 North First St. Coworking company Spaces leased the remaining 45K SF.

Additional absorption could be coming down the pipeline. Cushman & Wakefield is actively leasing 457K SF at Steelwave’s America Center Phase 2 campus, and CBRE is leasing a 245K SF entitled Class-A building at Bay 101 Technology Place.

Tech companies are buying instead of leasing in some instances, and it is not just Google making big purchases in San Jose. In the last 12 months, Apple, Microchip Technology and Microsoft have made plays for sites in North San Jose.

Apple bought two parcels spanning 16.3 acres in North San Jose with an assessed value of $61M in February, the Mercury News reports. The sellers were Orchard Parkway Phase II Land, an entity controlled by Steelwave, and Orchard Parkway Holdings, an entity controlled by Legacy Partners Commercial.

The parcels, at Atmel Way and Orchard Parkway, currently have a 200K SF building and are large enough to accommodate a 1.2M SF office campus. Apple has bought enough land in North San Jose to have a campus spanning 85 acres.

Semiconductor maker Microchip Technology paid $40.8M to KBS Realty for 4.8 acres at 450 Holger Way in April that includes a 93K SF building occupied by Microchip.

“Microchip bought the building because it is a lower cost to operate an owned building compared to a leased building,” Microchip Technology spokesperson Brian Thorsen told the Mercury News.

Microsoft bought 65 acres for over $73M in October that it could turn into a data center and light industrial campus.

Find out more about leasing and sales activity in North San Jose during Bisnow’s Silicon Valley State of the Market event July 26 in San Jose.