SAN JOSE—Home to many Fortune 500 companies, Silicon Valley is known as a hub of information-technology development and brain power. San Jose ranks as the third-largest city in California and the 10th-largest US city, according to city government stats. Santa Clara County is the largest Bay Area county in terms of population (nearly 2 million) and total employment, including 1 million wage-and-salary jobs, according to a recent Santa Clara County economic forecast.
Furthermore, in a report that analyzes 30 metropolitan areas in terms of the economic impact of digitalization, Brookings has just ranked San Jose as number one, GlobeSt.com learns. In recent decades, the diffusion of digital technology into nearly every business and workplace or digitalization has been remaking the US economy and the world of work.
As the highest ranking city on this list, San Jose is actively engaged in finding the best balance between adopting technological innovations and quality of life for all its residents and workers. In short, digitalization appears to be associated with several important economic benefits for cities but also with widening performance and wage gaps.
According to PwC, Silicon Valley venture-capital deal volume totaled $2.2 billion in the third quarter of 2017 alone, ranking third in the US. In the first half of 2017, Silicon Valley's venture-capital deal volume was $6.3 billion. Silicon Valley's major public and private employers include Apple, Google, Facebook, Applied Materials, Cisco Systems, eBay, PayPal, IBM, Adobe, Microsoft, Intel, Hewlett-Packard, Lockheed Martin, NVidia and NASA.
Though tenant activity has been focused on full-floor class-A suites, a renewed tech focus on downtown San Jose's Transit Village has sparked significant interest from developers and investors. Many are looking to acquire property near the site, which could prompt new office development that would ease large block availability constraints and further expand the skyline. With more tech firms migrating away from overheated submarkets, the San Jose CBD is becoming a major urban hub for the Valley, according to Avison Young.
Only 10 cities account for more than half of new office construction underway nationwide with markets such as San Francisco, Silicon Valley and Dallas leading the way. Apartment supply is only slightly more diversified, as the top cities presently account for 45% of inventory under construction, says Buchanan Street Partners.
Savills Studley recently released its fourth quarter 2017 Silicon Valley office market report. The report is a compilation of office leasing statistics and trends, major transactions, submarket comparisons, employment data, and investment and development activity.
“Leasing by the Valley's largest tech firms backed off a bit in the quarter, leaving some room for others to take space. WeWork's big splash in San Jose offers an intriguing alternative to firms looking for scalability and flexibility–options that have been in short supply in the Valley's office market,” says John Brady, Savills Studley vice chairman.
Other highlights of the report:
Deal volume spiked to 1.5 million square feet, the strongest total since the fourth quarter of 2016. A flurry of leases in excess of 100,000 square feet fueled the quarterly spike.
The region's overall availability rate decreased by 110 basis points to 14.9%, dropping 40 basis points from year-end 2016. The class-A rate fell by 240 basis points to 18.6%, its lowest mark since late 2016, and dropped 10 basis points from year-end 2016.
Regional overall asking rent ($3.99) dipped by 3.5% during the fourth quarter, but increased by 7% year-on-year. Class-A rent has spiked by 6.3% from year-end 2016 to $4.20.
Year-to-date property sales through November of 2017 totaled $4.5 billion–increasing by 14% compared to the $4 billion sold during the same period in 2016 as investors target the Valley.
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Lisa Brown
Lisa Brown is an editor for the south and west regions of GlobeSt.com. She has 25-plus years of real estate experience, with a regional PR role at Grubb & Ellis and a national communications position at MMI. Brown also spent 10 years as executive director at NAIOP San Francisco Bay Area chapter, where she led the organization to achieving its first national award honors and recognition on Capitol Hill. She has written extensively on commercial real estate topics and edited numerous pieces on the subject.
