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Bay Area Research Rant: Silicon Valley Lay of the Land

By Robert Sammons, Regional Director – Northwest U.S. Research

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Silicon Valley is composed of many disparate submarkets – several controlled by behemoth tech companies and others with more of a mix (but, of course, almost all still tech companies of one sort or another!). For this week’s Rant, I wanted to give a lay of the land, as it were. For those unfamiliar with the geography of this incredibly large market (79.0 million-square-feet of office space and 167.5-million-square-feet of R&D product), the map below should provide a quick tutorial. Even those that know the area well will benefit from the vital statistics included from the fourth quarter of 2016.

The map here explains the “what, where, and how much”. It includes the major submarkets of Silicon Valley along with each of their vacancy rates and average effective rents for combined office and R&D (research and development) space. The rent figures are all triple net, by the way, and not gross. Oh yes – there are some arrows you’ll notice – pointing out that some of those major players (you’ll see their names on the map too) that have been instrumental in tightening vacancy and raising rents in several submarkets. That, in turn, has created an opening for other submarkets to woo tenants that have been nudged out by said players.

I won’t go into the details of all the statistics – but I will point you in the direction of the data and more commentary in our variety of Silicon Valley market reports here. I will, however, give you a brief glimpse of how we see 2017 shaping up:

  • We expect rents for Silicon Valley overall to remain rather flat this year as deal volume concentrates in submarkets with lower rents.

  • The recent uptick in sublease space will likely continue in 2017 thanks to M&A activity and right-sizing.

  • Between that increase in sublease space and the delivery of new product to the market (6.0 million-square-feet of office space and 1.3 million-square-feet of R&D is currently under construction), Silicon Valley should see an increase in available big blocks of space – particularly Class A office.

  • As Apple absorbs the space it has already leased or is building (including the iconic “Spaceship”), we expect the company to have a lesser impact on the overall market.

  • A bit of a wild card will be the pattern of companies expanding/opening satellite offices in either direction between Silicon Valley and San Francisco.

  • Companies with a major presence here may look to expand (but not relocate) to less expensive markets outside the Bay Area; this is directly related to cost of living (housing) and transit issues.

  • Submarkets within close proximity to Caltrain stations or those offering nearby connectivity via VTA light rail will generally outperform other areas of Silicon Valley.

Like the rest of the Bay Area, we see the recent easing of activity as really just a pause and a much needed one. The torrid pace of activity over the past five years really had become unsustainable. The market is still quite strong with a healthy line-up of tenants in the market. But to keep tenants here and bring new ones in, there has to be a happy medium on pricing and availability.

This post is guest commentary from the latest weekly edition of our Bay Area Research Rant, which you can subscribe to for free by e-mailing robert.sammons@cushwake.com.

Robert SammonsRobert_Sammons is a Research Director for Cushman & Wakefield. Based in San Francisco, Robert’s principal roles include working closely with the C&W research teams across the Northwest – including Northern California, Portland and Denver. Robert is author of numerous documents that delve into a wide variety of real estate and economic trends. He has been a quoted source for all manner of real estate and related economic information in many widely known media outlets across the country. Robert has 29 years of real estate experience as both an appraiser and researcher. He earned a BBA in Real Estate from The University of Georgia and an MS in Real Estate from Georgia State University. Robert is a member of the Urban Land Institute.

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