Colliers International Q2 2014 Silicon Valley Report

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RENEWED ACTIVITY SPREADS THROUGH THE VALLEY

The Silicon Valley economy continues to lead the nation with growth in jobs, income, innovation and venture capital investments. During the second quarter of 2014, Silicon Valley remained the center of the universe for venture capital investments, claiming 41.6% of all venture capital dollars invested during the period. Overall, VC funding is at the highest level in fourteen years. The Silicon Valley has added more than 8,200 jobs since the beginning of 2014, dropping the unemployment rate to 5.3%.

After what felt like a sluggish start to the year, new leasing and user-sale activity during the second quarter of 2014 increased 42.5% over the previous quarter to 6.95 million square feet of total gross absorption. This is the highest level of activity since the third quarter of 2011. While gross absorption dipped in the industrial sector during the quarter, activity picked up in the office, R&D and warehouse markets. Each of these three product types measured an increase in activity of at least 40% over the previous quarter. The Silicon Valley’s office and R&D sectors accounted for 76.9% of all new activity and combined, they posted a 46% increase over activity levels measured during the first quarter of the year.

In total, 5.4 million square feet of space was vacated in the Silicon Valley during the second quarter. This is now the second straight quarter that more than 5.0 million square feet of space has found its way back to the market during a single quarter. Despite the slight uptick in rollover space, the Silicon Valley measured an increase in occupancy during the period. Generating 1.46 million square feet of net absorption, this anticipated turnaround reversed the minor occupancy loss measured during the first quarter of the year.

Commercial construction is on fire throughout the Silicon Valley. Colliers is now tracking more than six million square feet of projects currently under construction, with even more scheduled to begin before the end of the year. Irvine Company broke ground in Q2 on the first phase of their Santa Clara Square office project totaling 607,186 square feet. The developer also landed the largest office deal year-to-date when Ericsson preleased 412,492 square feet in two of the three buildings they have under construction. Commuters on the 237 corridor can now see steel going up at Jay Paul’s Moffett Place, which will add 945,816 square feet of office inventory to Sunnyvale’s Moffett Park submarket towards the end of 2015.

Unlike the first quarter, when no new deals were signed over 70,000 square feet across all product types, nineteen deals were signed above this threshold during the second quarter. This increase in large deal velocity is in line with Colliers’ expectations and is likely to continue throughout the second half of the year. It further demonstrates that the Silicon Valley’s relatively weak first quarter was just a bump in the road on the way to what could still be a record year for the office market.

The Silicon Valley remains the greatest beneficiary of the current tech boom. As reports continue to pour in of record-setting economic indicators, the murmurs of a dreaded bubble begin to surface. So is it a bubble? Many industry professionals insist that Silicon Valley is not in bubble territory; that the revolution of mobile and cloud computing coupled with profitable companies going public, is just enough of a boom to have us positioned just right.

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