By Julie Leiker
Office Market Resumes Upward Swing
Job growth in the Bay Area has recently begun to slow, as 21,000 new positions were added year-over-year in the region. In Santa Clara County alone, the employment has increased by over 220,000 since December 2009, just after the end of the recession. The recent slowing of job growth is a result of 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%.
Silicon Valley’s office vacancy rate remained flat during the first quarter of 2017 at 9.1%. However, this marks an increase of 160 BPS from the 7.5% rate of one year ago. This translates to 7.3 million square feet (MSF) of availabilities, a slight increase from 7.2 MSF in the fourth quarter of last year.
Even with the generally consistent total number, sublease space continued to rise, finishing the first quarter at 30.4% of all available space, up from 25.4% in the fourth quarter and well above the ten year average of 13.2%.
Net absorption bounced back from the fourth quarter’s dreary performance, finishing with a positive +613,000 square feet (SF). This compares favorably to the entire year of 2016 occupancy of +900,000 SF. The record, by far, continues to be the year 2015, during which Silicon Valley hit a historic net absorption figure of +7.4 MSF. For context, the ten-year average net absorption is +1.8 MSF.
Deal activity increased this quarter to 2.4 MSF, up from 2.0 MSF in the fourth quarter. This compares to the annual gross absorption (total leasing) for 2016 of 8.3 MSF.
The ten year average is 8.6 MSF and the record year of 2015 saw 13.8 MSF. The largest deal of the quarter was Amazon / A9’s lease of a newly constructed building in East Palo Alto (214,000 SF). Facebook, after leasing a 135,000 SF building from Sobrato in Menlo Park in the third quarter of 2016, expanded into the adjacent twin 135,000 SF building during the first quarter. Other significant deals included San Andreas Regional Center in South San Jose (73,000 SF), White & Case in Palo Alto (39,000 SF) and Versa Networks in North San Jose (36,000 SF).