Silicon Valley Office Campus Trades at Steep Discount

For office investment sales in 2024, the glass is either half empty or half full—and we’re not talking about occupancy levels, although that’s certainly part of the equation. It’s mostly about buying properties at a favorable price point like a Silicon Valley office campus that has been sold.

Sellers can console themselves by accepting the reality that the new normal for office valuations is much lower than it was before the pandemic. Buyers are placing bets on properties that previously were prime locations, hoping these bargains eventually will regain their lost value.

In struggling markets, each transaction is scrutinized as a benchmark—for pricing by sellers in the short term and optimism by buyers in the long term.

In the heart of Silicon Valley, an office campus in Mountain View, that was built in 2020 and pre-leased by Google during its construction, has sold this week for nearly half of its value four years ago.

A joint venture of DivcoWest and TMG Partners has purchased for $108M in an all-cash deal the 190K SF property at 600 Clyde Avenue from seller Renault & Handley. The deal translates to about $569 per SF.

That may sound like a hefty price, but not in a prime location in proximity to Google’s global headquarters. According to CoStar data, the average price tag for premium office properties in the area four years ago was more than twice as high, about $1,140 per SF.

In January 2024, the Santa Clara County Assessor’s Office pegged the value of the building at 600 Clyde at $188.4M, SiliconValley.com reported. The sale price this month was 43% below that valuation.

Google pre-leased the entire building more than a year before Renault & Handley completed construction in mid-2020. In May 2023, Google put the space at 600 Clyde up for sublease as part of a right-sizing of its Bay Area footprint that aimed to trim an estimated 1.5M SF.

The Clyde Avenue building, which has been marketed by Newmark for the past 15 months, is vacant and available through August 2031, CoStar reported.

Bay Area real estate investment firms have been placing bets on a long-term recovery of markets afflicted with substantial office vacancy and availability rates by scooping up discounted properties.

Earlier this month in San Francisco, a joint venture between Flynn Properties and Ellis Partners paid about $40M to acquire 631 Howard Street from Invesco in an all-cash deal that was more than a 40% discount off what the seller paid for the building nearly a decade ago.

San Francisco-based Flynn is betting that the fully leased 109K SF building is well-positioned for the eventual recovery of the city’s office market, which is dealing with record-high vacancies in the wake of the tech sector’s embrace of remote work during the pandemic.

Flynn, a long-term investor, expressed confidence that the city’s office market will rebound.

“San Francisco is going to come back in a big way for all the right reasons,” he told CoStar. “It has gone through a tough time, but that’s getting better, and I like the idea of investing behind that belief.”