Silicon Valley’s Tech Presence Has Fueled Recovery

The Silicon Valley’s strong tech presence has helped to stabilize the market after the recovery. During the pandemic, the tech industry expanded, and that has helped to attract investment capital, according to a new report from Colliers. As a result, sales volumes increase 113.8% year-over-year to $10.8 billion.

In the last year, investors have favored long-term investments with stable, credit tenants and significant lease term. As a result of the strong sales activity, pricing has reached new records, a significant milestone considering the Silicon Valley is already a top-tier market. The median price per square foot for Silicon Valley office hit $554 per square foot, more than double the national average, and last year, Hunter Storm sold the Yahoo-leased portion of Coleman Highline to AGC Partners for $780 million or roughly $1,200 per square foot, breaking previous pricing records.

With the Omicron variant subsiding, the report expects office reopenings to accelerate this year; however, uncertainty remains in the office sector as to how companies will tackle workplace strategy going forward. There is an expectation that remote work will be part of a hybrid model, but there is no telling how that will impact office leasing or investment. In the R&D space, buildings are being repositioned into life science facilities, a trend that will likely continue in 2022 to meet the growing biotech demand, according to the Colliers report. Already this year, office owners have seen an improvement in leasing. For example, Presidio Bay Ventures secured several tenants at its Menlo Park development Springline, a 6.4-acre project that is scheduled to open later this year. The property features modern office space, restaurants and hotel-style residences. While the residential portion of the property will begin pre-leasing, the company has already started curating its commercial tenant mix.

Like the rest of the country, industrial and multifamily assets are in the most demand. In 2021, industrial occupancy gains reached 2 million square feet. According to the report, it was the fastest-growing sector in the market last year. Recent deals include Bridge Industrial’s completion of Bridge Point Silicon Valley — a 388,240-square foot state-of-the-art industrial facility in Milpitas, CA located on 34.5 acres. Bridge purchased the site in 2019 and was able to secure a long-term lease agreement with a major e-commerce company prior to groundbreaking. The development began in spring 2020.

Multifamily has similar traction, but as a result, the demand has exacerbated an already grave affordable housing crisis. However, there is a strong new construction pipeline, which will likely alleviate some of the issues, but the report expects the market to remain hot through 2022.