Contact Us
News

Tech Titans’ Expanding Campuses Lead Silicon Valley CRE Activity In 2017

Tech is dominating CRE activity not just in San Francisco, but also in Silicon Valley. The tech giants of the Valley, including Facebook, Apple and Google made plays for additional land and offices and furthered plans for large developments through the third quarter. While Amazon shops various metros for its planned HQ2, including San Jose, Google is having the biggest impact locally.

Tech Titans’ Expanding Campuses Lead Silicon Valley CRE Activity In 2017

“While Amazon conducts a nationwide search for its much-vaunted HQ2, Google is keeping it close to home," Savills Studley Senior Managing Director Joe Brady said. “News of major property acquisitions in Sunnyvale and details on its plans in Downtown San Jose underscore its deepening commitment to the Valley."

Google's Sunnyvale purchases grew to over $1B during Q3. It also is buying parcel after parcel through real estate partner Trammell Crow to prepare for the massive Diridon Station development, which will include up to 8M SF of office space and employ 20,000. Its proposed San Jose campus has sparked additional interest from investors and developers in Downtown, an area that has been largely passed over due to its lack of transit and nightlife, according to Savills Studley.

Now companies want to be in Downtown San Jose due to its strong talent base and the new transit options, including BART’s San Jose extension. Adobe also said it will expand its downtown San Jose headquarters to accommodate 3,000 more employees. Cohesity leased 40K SF in San Jose, and Bank of America expanded its lease at 560 South Winchester in San Jose by over 60K SF effective Nov. 1.

Q4 is shaping up to be a very active quarter for leasing with WeWork subleasing 457K SF from LinkedIn at the Village at San Antonio Center, marking its largest deal to date. 

Investors Flock To Silicon Valley Office

Tech Titans’ Expanding Campuses Lead Silicon Valley CRE Activity In 2017
Murphy Crossing in Milpitas

Sales through July in Silicon Valley increased 23.1% to $2.14B compared to $1.74B in Q3 2016, according to Savills Studley. Asian investors have poured over $300M into Silicon Valley properties within the last few months. Han’s Laser Technology Industry Group has spent about $199M on four properties, including in North San Jose, downtown San Jose and Sunnyvale, according to the Mercury News. Investors bought three offices in Santa Clara for $610M in August. Hewlett Packard leased 250K SF in the building where it will establish a new headquarters.

Overall asking rent in Silicon Valley increased 19% for Class-A offices to $4.28/SF in Q3 compared to $3.60/SF a year ago. Deal volume jumped by nearly 5.4% in the third quarter. Tenants have leased 4M SF in the four most recent quarters, according to Savills Studley.

Among the largest leases in the quarter was Renasas Electronics America’s 216K SF lease in Milpitas at Murphy Crossing as part of a lease expansion. Apple leased additional space in Santa Clara as well during the third quarter, taking up 73K SF in addition to space previously leased in Sunnyvale and North San Jose. DLA Piper renewed its lease at 2000 University Ave. for 119K SF.

High Vacancy Rates Aren't Stopping Development

Tech Titans’ Expanding Campuses Lead Silicon Valley CRE Activity In 2017
Rendering of Facebook's plan for its Willow Campus in Menlo Park

Even with strong leasing momentum, availability increased 30 basis points to 16% in Q3. Class-A availability decreased 10 basis points to 21% while Class-B and Class-C availability increased 50 basis points to 13.6%. Santa Clara and North San Jose continue to have the highest availability rates with 23.3% and 31.1%, respectively, during the quarter.

Rising vacancy rates did not keep developers from pushing forward with various projects. A cap on office development in Palo Alto that was extended through June 2018 is helping push developments south into San Jose and may persuade more companies to consider North San Jose and Santa Clara. San Jose recently approved a long-awaited project from Insight Realty, which would bring 214K SF of office to downtown San Jose as part of the mixed-use development Museum Place.

A real estate partnership also is in the process of redeveloping the 27-acre Lam Research campus into an over 1M SF office and R&D complex. Facebook said it wants to build a massive Willow Campus with 1.75M SF of office, 215K SF of retail and 1,500 housing units in Menlo Park.