• Silicon Valley

Marketbeat Silicon Valley – Industrial Q1 2017

By Julie Leiker

Little Wiggle Room in Such a Tight Market
Job growth in the Bay Area has recently begun to slow. However, 21,000 new positions were added year-over-year in the region. In Santa Clara County, the employment has increased by over 220,000 since December 2009, just after the end of the recession. The recent slowing of job growth has resulted from restructuring, increasing M&A activity, and the relocation of jobs to lower cost markets.

The unemployment rate for Santa Clara County still declined a healthy 30 basis points (BPS) across the same time period to 3.8% from 4.1%, well below the national figure of 4.8%. Industrial vacancy in Silicon Valley increased slightly in the first quarter of 2017. It currently stands at a scant 3.1%, up from 3.0% just three months ago. Warehouse product closed the quarter with a vacancy of 2.7% and manufacturing was 3.3%.

One year ago, this metric stood at 3.4% for warehouse and 2.7% for the manufacturing sector. After two quarters of no available space in the warehouse sector, the city of Milpitas’ vacancy rate was 0.7%, down from 7.0% one year ago. That submarket’s industrial sector is also historically low coming in at 0.4%, down from 4.3% one year ago.

Interestingly, speculative construction returned to the region this quarter and within the Milpitas submarket. The McCarthy Creekside industrial project broke ground this quarter on phase I of 451,000 square feet (SF).

With the lack of quality space on the market along with deep tenant demand, we don’t expect new projects to be available for long. In Silicon Valley we are seeing a perfect storm of spiking demand from both local and regional users as well as national and global e-commerce players. Today’s tenants are willing to pay higher prices for modern Class A warehouse facilities. The problem is that these properties are simply not available.

Occupancy growth will be driven by speculative development in 2017 and 2018. Activity will pick up as more projects enter the construction pipeline.

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  • Silicon Valley

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