Annual Commercial Real Estate Forecast Says Silicon Valley Could Set New Records in 2014
San Jose, Calif. – February 28, 2014 – Trends2014, Colliers International’s 15th annual commercial real estate forecast, provided outlooks on Silicon Valley’s commercial real estate market, the metamorphosis taking place as cities look to urbanize, and the economic and political landscape. More than 600 Colliers clients and industry professionals attended the highly anticipated forecast at the historic California Theatre in downtown San Jose on Wednesday, February 19, 2014.
Jeff Fredericks, executive managing director with Colliers, was enthusiastic in his commercial real estate outlook for the Silicon Valley in 2014. The greatest optimism was centered on trends and records set in Silicon Valley’s real estate market during 2013. “The record breaking performance in 2013 is a great glimpse into 2014,” said Fredericks. “We already have 1.9 million square feet of pending net absorption teed up for 2014 in the form of preleased new construction, and more than 1.4 million of that is office space.”
Fredericks continued that his forecast of 2014, stating that 2014 might be the best year ever for office net absorption. The prospects of a good net absorption year are partially owing to historic lows of supply coming on the market. “Building on our 2013 momentum we think you’re going to see more than seven million square feet of gross absorption in the office sector in 2014 with net absorption eclipsing three million square feet, which would be a new record for office.”
The event included a panel of speakers: Hanns Lee, senior vice president of Loews Enterprises; Bill Witte, president of Related California; Johnathan Harvey, Turner-Devcon’s director of Levi’s® Stadium; and moderator, Lisa Gillmor, vice president of Gillmor & Associates and three-term council member for the City of Santa Clara. Following the panel discussion, keynote speaker Gregory Valliere, veteran Washington analyst and chief political strategist with Potomac Research Group, spoke on key Washington issues for investors and finally, some good news from Washington.
Lisa Gillmor opened the panel discussion on the “Metamorphosis of Santa Clara.” She described how the 49ers and the City of Santa Clara formed their partnership to build a new home for the Bay Area’s beloved football team. “We had to figure out how a city of only 118,000 people would pull this off” Gillmor said. “In 2010, we won the election by more than 15 points. So our citizens sent a very loud message that they wanted the stadium in our city.” Gillmor continued, “We created the environment that attracted the stadium.” When speaking about how the city of Santa Clara is business friendly, she said, “We did not think twice when we were asked to cooperate with the super bowl bid.”
Panelist Johnathan Harvey of Turner/Devcon, a Joint Venture (TDJV is the general contractor building the new stadium) gave a rundown of some of the facts and figures of the stadium. While unveiling new photos of the stadium’s progress, he described the magnitude of the Levi’s Stadium project. “The site itself is 21 acres, and the field level is 10 acres of that,” Harvey said. “It is a very interesting build process because of the limited space to lay down. We broke ground on April 23 of 2012. And just about six months before that we were told we were going to take a year out of the schedule – which is a whole other story,” Harvey said lightheartedly. When asked about some of the unique amenities that are in store for fans attending, he described, “The technology piece that is under wraps is going to be a game changer. I can tell you that the infrastructure that is being put in place in the stadium is second to none: It has never been done in a facility this size.”
Hanns Lee, followed with an overview of Centennial Gateway, a joint venture with Lowe Enterprises and Montana Property Group, which would serve as an entertainment hub to both the city and the stadium, “It will serve as a gateway to both Related’s project and in many ways to the stadium as well.” Lee continued, “In this particular area, we really believe high density and an urban environment is really going to bring the energy that has been established by the stadium.” Lee closed with, “The stadium has its own energy; obviously it will be extremely energetic on game day, but similar to a large being, it has a thermal mass and the energy doesn’t go away.”
Bill Witte described Related California’s project, City Place. “This is about a central gathering place that’s in the city of Santa Clara and will serve the city, but will also have a regional impact.” Witte went on to describe the demand for a project of this magnitude. “It was catalyzed by the stadium – the demand wasn’t created by the stadium – but the stadium focused people’s attention on this site.” Witte added, “Despite all of the development in the Silicon Valley, there is really a hole in the doughnut.” he continued. “The whole can be greater than the sum of the parts.” Closing with, “What I am really excited about is to help create a real place, not just collection of buildings.”
Gregory Valliere, the final speaker for the event, discussed current economic conditions and the state of affairs in Washington. “Let me start by saying, the big difference this year from last year, is there is absolutely no chance of a major crisis to unnerve the markets like we saw last year.” Valliere continued to give his thoughts on a second major theme in 2014, “This Fed probably has one or two more years to go before they raise the Fed’s fund rate.” Valliere sited historic low inflation rates as good news for Silicon Valley and that “tapering does not equal tightening.” Valliere continued with, “So we have another two years to enjoy remarkably low interest rates.”
Speaking on the budget deficit, Valliere said “the budget deficit is in freefall, spending is under control.” He predicts that the deficit will continue to fall in the years to come. Valliere sites three things that brought the nation to this point: first, “receipts look really good, and I don’t see these slowing in the foreseeable future;” second, “there is no new spending, I haven’t ever really seen anything like it;” and third, “we’re actually seeing real spending cuts for the first time in my career.”
Valliere concluded his presentation with the growing isolationism in America. “I always look as an analyst for new themes, new ideas, something that comes along that perhaps we haven’t thought of.” He continued, “The really troubling theme to me is this really strong undercurrent in America toward isolationism. And those of you who have read history certainly know that in the 1930’s the US had turned isolationist, so did France, and we all regretted it.” “We saw this hornet’s nest stirred by the debacle in Syria. That highlighted the growing isolationism in America.” Valliere concluded that, “What is the message that we send as the US becomes more isolationist? It is something that I think will haunt us over the next few years as the country decides which way we want to go on that.”