Jones Lang: 6.2MM Square Feet of Silicon Valley Offices Rising

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

By Sharon Simonson

[dropcap]S[/dropcap]ilicon Valley defies conventional wisdom again. While the rest of the world migrates to the city—and lots of folks here are migrating, too—a big contingent still likes the ‘burbs and is willing to pay money to be there.

Sunnyvale The Registry real estate Silicon ValleyAt mid-year, 5.2 million square feet of office development was underway in Silicon Valley and on the Peninsula. Every single square foot of it is in the suburbs, according to Jones Lang LaSalle.

Tenants have already spoken for 62 percent of the 3.6 million square feet of the valley’s speculative office development, Jones Lang reports. Corporate owners have 1.6 million square feet more under construction for themselves; developers are renovating another 1.1 million square feet.

All of this new activity comes even though 9.7 million square feet of Silicon Valley offices—including nearly 2 million square feet in Downtown San Jose—are vacant. That’s more than 16 percent valley wide and 23 percent in downtown.

“Demand is so strong for new space that is well-located,” said Amber Schiada, Northern California research manager for Jones Lang LaSalle Americas Inc. “These developments are going to be in prime locations with easy access to transit. Developers are speaking to a supply shortage.”

Nearly 3 million square feet of speculative development is concentrated in Sunnyvale and Santa Clara—two of Silicon Valley’s more suburban cities; another 600,000 square feet are in Mountain View. Nvidia Corp. wants to complete the first 500,000-square-foot building of its new 1 million-square-foot Santa Clara campus by the end of 2015, and Samsung Electronics breaks ground July 10 in North San Jose on more than 680,000 square feet.

“What you are seeing are tenants and companies responding to the really tight traffic situation, asking, ‘How do we get people down here?’ So they want a good location with connectivity,” Schiada said. “Tenants want to be at the nexus of [highways] 101, 87, the VTA and Caltrain.

Both Samsung and Nvidia are embracing modern, iconoclastic architecture. Nvidia plans two triangular buildings with two floors each measuring 250,000 square feet. Samsung’s 10-story building includes two above ground partially open-air floors where employees can be outside while in the building. The glass and white-metal cladding and a star-shaped cafeteria give the campus a futuristic hue and reduce solar heat gain.

“Samsung chose Silicon Valley as a much larger home base for housing some of the best, most innovative minds in the world,” a spokeswoman explains in an invitation to the North San Jose groundbreaking.

Also in North San Jose in the second quarter, data-storage company Nimble Storage signed a lease for a three-building, 164,600 square-foot campus at 211-281 River Oaks Parkway, JLL reports. The datacenter application and security company promises on its Web site: “Our mission is simple: Give our customers the most efficient, high performing, and scalable storage platform on the market.”

The Irvine Co. is also underway on the second phase of its Santa Clara Gateway project with 465,000 square feet of new offices.

Downtown San Francisco—the ultimate urban environment—is undergoing its own development boom, of course. At the end of the first quarter, 2.8 million square feet of offices were under construction, according to CBRE Inc. Another nearly 15 million square feet were behind that, including the massive Transbay Tower, which broke ground in the quarter, and 181 Fremont, for starters. JLL numbers for San Francisco for the second quarter are not yet available.

On the demand side, Jones Lang is tracking 6.5 million square feet of space requirements for Silicon Valley and Peninsula offices. All but 500,000 square feet of it, which originates with the professional-services sector, emanates from technology companies.

Networking and telecommunications companies account for 1.5 million square feet of that demand, the largest category, followed by hardware makers, software makers and then Internet-related companies. Only the gaming sector is struggling, Schiada said.

Companies remain focused on finding locations in Mountain View, Sunnyvale and Palo Alto, and developers are clearly responding to those preferences, she said. Still, demand exceeds 1.5 million square feet for Mountain View space, but less than 200,000 square feet are vacant and not quite 600,000 square feet are under construction.

The mismatch is even greater in Palo Alto, where tenants say they want 650,000 square feet, but less than 500,000 square feet are available and only 60,650 square feet is being built.

West Coast Commercial Real Estate News