On Heels of Record Year, Newmark Cornish & Carey Focuses on Hot Issues for 2015

Westcore, DRA Advisors, Silicon Valley, San Jose, Fremont, Northern California, Oakland, M West, DivcoWest, TPG Real Estate, Mission West Properties

“I hope you guys are enjoying this recovery as much as we are,” proclaimed Chuck Seufferlein, president of the western region of Newmark Cornish & Carey at this week’s annual Real Estate Review & Forecast that the company organized at the Santa Clara Convention Center. The annual event featured a familiar line up of Seufferlein—Mahoney—VC Executive providing an insider’s view of the commercial real estate market in Silicon Valley and the drivers of the industry.

Sunnyvale Town Center Silicon Valley commercial real estateThis year marked another record for the industry, as well as for the firm. “We are now coming off our third successive best year ever, when you look at all the metrics that we use to compare year by year,” added Seufferlein before handing the podium over to Phil Mahoney, executive vice president, Corporate & Institutional Services who provided a play-by-play overview of the market.

Setting the stage for 2015, Mahoney focused on the figures that defined the past year. Overall, they matched most of what every other report had provided to date: rents in all classes of product increased, vacancy decreased and the region witnessed some record sales. On a more macro economic basis, private employment gains led across the nation, IT budgets were up significantly and the year was marked by a robust number of IPOs (highest level since 2000).

The only seemingly negative figure was in net absorption, which Mahoney put into context of the previous years. “Net absorption was down slightly over the year, and I think that’s as much a factor of just how strong things have been in ’12 and ’13, plus we’re finally starting to see some new product come to the market, especially in office,” he said.

This fact was overshadowed by historically highest sales transactions and leases. “The sale numbers, as many of you here in the room know, were off the charts,” said Mahoney as he presented a slide that summarized the top 10 office/R&D deals of 2014 in Silicon Valley. The smallest deal on the list was a $95 million transaction in Santa Clara from December of 2014 when Prudential Real Estate Investors purchased the 359,000 square feet R&D facility in Santa Clara from Pearlmark Real Estate Partners. All ten deals accounted for more than $1.5 billion worth of transactions.

On the leasing side, the largest lease ever signed in the nation in history was Mahoney’s nearly 2 million square foot lease of the Jay Paul Moffett Towers to Google from October of last year. Mahoney predicted, however, that large companies such as Google likely will not be taking as much space in the immediate future, although of slew of smaller deals will make a larger impact on the market throughout the region.

“We’re just not going to see the same sort of take down of space that we saw last year by the bigger companies. They are going to do some digesting this year, but there is a whole host of companies behind them, more Silicon Valley startup sorts that we’ll start to hear and read more about doing deals here over the next couple of quarters,” he said.

In 2015, he predicted non-CBD (central business district) Class A office rents will continue to rise. R&D rents will likely rise a bit or stay flat, while vacancy should see a slight to minimal drop. One issue that is near and dear to Silicon Valley, which has been getting quite a bit of national attention is immigration. “It matters, and it matters a lot in the Valley,” Mahoney said. “We are starting to see the problem of not having a more enlightened immigration policy.”

He quoted Fortune by adding that one third of all new businesses in the US are created by immigrants, who represent only 13 percent of the population. Nearly two thirds of all patents at Qualcomm, Merck, GE, Cisco and Siemens are developed by immigrants. “This is an economically viable, driving force for us as a country, and certainly for us as a region,” Mahoney said. He added that this will be a significant issue during this year.

High cost and difficulty of obtaining entitlements for land will be another issue that will affect the market in 2015. However, the emergence of the internet of things and wearable health related devices will be an area of growth for the Bay Area that will continue to play a very important role in the region’s technology growth.

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