Bay Area At the Top of National Development Trends, States Report

Bay Area, Silicon Valley, COMMERCIALCafé, Alameda, Contra Costa, Santa Clara, Solano, Cupertino, Santa Clara County, Yardi-Matrix

By Michele Chandler

As a flood of tech firms and other business startups continue putting down roots in the Bay Area, there’s a new Gold Rush—surging demand for high-end office space that is bypassing central cities and heading straight for Silicon Valley’s suburbs.

In fact, a new analysis by commercial real estate listings website COMMERCIALCafé projects that about 5.9 million square feet of new suburban office locations will open in the Bay Area in 2018, placing the area in the No. 1 spot for such development. The group’s Bay Area analysis includes just four counties: Alameda, Contra Costa, Santa Clara and Solano.

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With open land in the central cities growing scarce and pricey, there’s scant room for new construction as tech giants including Apple, Facebook and Alphabet-owned Google are expanding. Consequently, noted the report, “investors are shifting their focus towards the suburbs, where vacant land is still available, and the potential for large-scale development is bigger.”

Looking nationally, the analysis shows that 347 buildings totaling nearly 75 million square feet of new office space are on track for delivery next year, with 47 percent of that total being located in suburban communities.

Those upcoming corporate office campuses include Apple’s new, 2.8 million-square-foot corporate “spaceship” complex, which is nearing completion in Cupertino in Santa Clara County. The consumer technology giant “would’ve had a hard time finding enough space within the San Jose or San Francisco central business districts to fit” a development of that size, according to the analysis.

The composition of office space is also evolving, said Doug Ressler is director of business intelligence at Yardi-Matrix, a research group and subsidiary of Yardi, which also owns COMMERCIALCafé.

In the Bay Area in 2017, about 6.6 million square feet of new office space completed at 34 properties was competitive—defined as being built for a specific customer—while less than 478,000 square feet was non-competitive, or built on speculation to be leased out, Ressler said.

At the 21 properties expected to open next year, the difference will narrow, with 3.6 million square feet of office space being competitive, while 3.9 million square feet will be non-competitive, he said.

While ranking high on the office space delivery list sounds like a good thing, Ressler said it can turn into “a complicating factor,” dependent on how quickly the new office properties get leased and whether building owners must reign in office lease prices to attract new tenants as the overall supply of office space grows.

“With competitive properties coming on board…now demand has more alternatives to choose from,” said Ressler. “It’s kind of a dampening effect.”

The report also called out other tech-fueled suburban communities that are continuing as major locations for new offices next year. No. 2 Dallas-Fort Worth is expecting 5 million square feet to come online, while No. 3 Austin is expecting another 2 million square feet.

San Francisco county came in No. 4, with 1.7 million square feet of suburban office space that is now either in the pipeline or in various stages of completion.

When it comes to top cities, the research group estimates that New York City will again land in the top spot for urban office development in 2018, with 15 buildings and 6.8 million square feet of office space currently under construction.

The City of San Francisco took second place, with eight buildings and 4.6 million square feet of office space in the pipeline. In third place: Washington, D.C. The nation’s capital is set to add 12 properties totaling 3.7 million square feet of new office space in the next year, according to the report.

In part fueled by Apple’s upcoming state-of-the-art new campus at 10955 N. Tantau Ave., Cupertino came in No. 4. That complex will “grow the city’s existing office inventory by 55 percent, even though the space is non-competitive, as it was built specifically for the tech giant,” said COMMERCIALCafé’s report.

Los Angles came in at No. 10, with 1.7 million square feet of urban office space expected in 2018. “They have gotten to the saturation point in terms of employment that is driving the use of [office space],” said Ressler.

San Jose will rank No. 13 at 1.2 million square feet next year, while Sunnyvale will emerge at No. 17 with 1 million square feet and Menlo Park is slated to rank No. 24, with 706,941 square feet.

The 2.8 million-square-foot Apple Park in Cupertino will be the largest office development to come online during 2018, locally ahead of No. 4 Salesforce Tower at 415 Mission St. in San Francisco, with 1.4 million square feet and No. 7 Central & Wolfe, with 882,857 square feet of office space in Sunnyvale at 222 North Wolfe Rd.

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