Silicon Valley Office Submarket Gets A Gold Star For Pandemic Performance
Not all office markets of major metros have performed dismally during the coronavirus pandemic, and the outliers have some shared features.
Some markets, such as 12 dubbed star submarkets by a report from Newmark that examined the performance of 56 U.S. markets, are deemed to have flourished over the past year, in particular Silicon Valley’s Moffett Park, which offers a hint at the region’s promising fundamentals.
Moffett Park in Sunnyvale topped the list with the lowest Q1 2021 office vacancy at 0.6%. Other top performing submarkets included Salt Lake City’s Research Park and Puget Sound’s Lake Union in Washington. Overall, the average Q1 2021 vacancy for the star submarkets was about 9% compared to the U.S. office market at 15%. The Q1 year-over-year vacancy basis point change was about 7 basis points for the star submarkets and nearly 300 for the U.S. office market as a whole, according to the report.
“We found that office submarkets that have growing life sciences demand, concentrations of recession-resilient industries or attributes of longstanding desirability, outperformed expectations during the pandemic,” Newmark Research Manager Lisa DeNight said in a statement.
Although Moffett Park wasn’t identified as a submarket that has fast-growing life sciences demand, the presence of big tech companies like Facebook and Google, seen as “resilient occupiers," helps anchor the area. The Newmark report also pointed out the role above-market average rents play in the submarkets, including Moffett Park. Although there was a tendency for office tenants to migrate away from high-priced areas during the pandemic, prime submarkets command demand for higher-quality space with amenities and accessible locations, according to the report.
Moffett Park’s office performance offers a window into Silicon Valley’s overall market strength. A report from CBRE identified Silicon Valley’s Santa Clara County, which contains Moffett Park, as the nation’s leading market for future office development and ranked it No. 17 for development opportunities in office, retail, multifamily and industrial, as reported by The Mercury News.
While high office vacancies in the downtown cores of places like San Francisco have delivered a devastating blow to restaurants and other businesses operating in those areas that depend on heavy daily foot traffic for survival, Silicon Valley’s dense suburban nature has resulted in a less dire impact overall for several property types, including retail.
Santa Clara County was the foremost destination for Bay Area residents who moved in 2020, gaining 125,200 residents, according to a report from Cushman & Wakefield.
“With suburban retail in particular, shopping centers that are anchored by essential services merchants have really thrived, and essentially there's been a flight to quality in the suburban markets,” The Econic Co. founder and principal James Chung said. “So really, those quality, anchored shopping center environments continue to see — and even more so now — a flurry of activity.”
While S.F.’s retail year-over-year vacancy rate increased by 39%, according to data from Kidder Mathews, Silicon Valley’s increased by 8%. There has also been zero square feet of retail under construction in S.F. for at least the past two quarters; Silicon Valley had 258K SF of retail being built in Q4 2020 and 11K SF in Q1 2021.