San Jose, Calif. – February 16, 2011 – Trends2012, Colliers International’s 13th annual commercial real estate forecast, provided outlooks on Silicon Valley’s commercial real estate market, the changing expectations of Silicon Valley occupiers of space, and the economic and political landscape.
Jeff Fredericks, managing partner with Colliers, was optimistic in his commercial real estate outlook for the Silicon Valley in 2012. “We’ve just had five-straight quarters of hefty reductions of available space and we’re not seeing any let-up in sight,” said Fredericks. “In 2011, the Valley finally took off in terms of gross absorption, which translated into 27.9 million square feet for the year or a 28% increase over 2010. We had 30 new office/R&D deals above 100,000 square feet in Santa Clara County in 2011 and half of those were above 200,000 square feet. While the volume of large deals may not be repeatable, the Valley is poised to generate more net absorption in 2012, even with a little less gross absorption.” Colliers’ forecast is for 27 million square feet of gross absorption for Silicon Valley in 2012, with six million square feet of positive net absorption.
The event included a panel of speakers–James Morgensen, vice president of workplace for Zynga, Inc., Michael Bangs, Director of Global Facilities Operations for Adobe Systems, Dr. Ian Sobieski, Managing Director and Coordinator of Band of Angels and Andy Zighelboim, Senior Vice President of Colliers International’s Investment Services Group. Colliers International brokers Jim Beeger and Luke Wilson posed questions to the panelists during the evening. Finally, main speaker Gregory Valliere, chief political strategist with Potomac Research Group, spoke on key Washington issues for investors as the 2012 Presidential election approaches. Over 600 Colliers clients and industry professionals attended the highly anticipated forecast.
Andy Zighelboim of Colliers was asked about the outlook for the Silicon Valley in the coming year. Zighelboim commented, “The Valley is fortunate to have cloud computing, mobile and social networking. These are real technologies with real profits and business plans. They are the drivers of our technology today. 2011 was the most profitable year for the firms of the Silicon Valley 150. We’re super bullish and we see continued growth into the future.” Dr. Ian Sobieski of Band of Angels commented, “We are on the front end of the next boom. The Valley has real competitive advantages compared to the rest of the country.”
When asked about their commercial real estate positions, Michael Bangs of Adobe remarked, “We’re an international company, so when we make real estate decisions, we’re making them on a world-wide basis. If we can’t accommodate our needs locally, we can go overseas if we need to or other places in the U.S. We do not see much changing for us.” “It’s all virtual, so we can be anywhere to create the product,” said James Morgensen of Zynga. “It’s a lot better to be under-invested in space than over-invested. Our needs will change as our employees change; they tend to require more space as they age.”
Gregory Valliere, the final speaker for the event, discussed current economic conditions and the state of affairs in Washington. “This economy is growing at about 2.5 percent, not great, but everyone was talking about a double-dip recession around Labor Day. I wouldn’t be shocked if national unemployment drops below eight percent by the end of the summer, although it may trend a little higher as discouraged workers come back into the labor force.” Valliere added, “There are no big signs of inflation. If you look at unit labor cost and other indicators, there’s nothing to get too worried about. The outlook for interest rates is a controversial subject. My friend Chuck Schwab was just quoted in the Wall Street Journal a few weeks ago saying that the Fed should stop being so accommodating. I think the funds rate will stay at zero for the rest of my life. I’m not persuaded that the Fed will raise rates anytime soon. In my opinion the Fed is just itching to do QE3, but they don’t have an excuse to do so at the moment with the unemployment rate coming down. If they have an excuse, they will move.”
“The one part of the economy that no one talks about is that, believe it or not, the budget deficit is coming down significantly as a percentage of GDP, which is what the bond market cares about,” Valliere added. “The numbers themselves are horrible, probably around a trillion this year and much lower than the official Obama forecast. The reason that number is coming down is receipt growth. In virtually every state except California, receipt growth is now a pleasant surprise.
Speaking on taxes and international affairs, Valliere commented, “What will Washington do to screw up what otherwise has been a good year for the economy? The answer that investors have to worry about is the end of the Bush tax cuts. To me that is the biggest dark cloud, and it will get darker as we move into the third and fourth quarters. I think that fundamental tax reform will be a dominant issue in the middle of this next decade. The wildcard is geopolitics. The biggest concern is Israel and Iran. It would be naïve to think that they are not already at war, a clandestine war well below the radar screen.”
About Colliers International
Colliers International is the third-largest commercial real estate services company in the world with 12,500 professionals operating out of more than 500 offices in 61 countries. Colliers International focuses on accelerating success for its clients by seamlessly providing a full range of services to real estate users, owners and investors worldwide, including global corporate solutions, brokerage, property and asset management, hotel investment sales and consulting, valuation, consulting and appraisal services, mortgage banking and research. Commercial Property Executive magazine ranks Colliers International as the top U.S. real estate company and the Lipsey Company ranks Colliers International as the second most recognized commercial real estate brand in the world. For more information, please visit our Web site at http://www.colliers.com.
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