Revived Return to Office Push Spurs Silicon Valley Trades

Bargain hunters looking to scoop up heavily discounted office properties in Silicon Valley soon may have a lot of company on the acquisitions side as a revival of the return to office push picks up the pace of investment sales.

Recent deals for two separate campuses in San Mateo and Santa Clara are harbingers of renewed interest among buyers in the tech hub’s office market, which has been battered by high vacancy rates and plunging office valuations.

Investors in these office assets are placing bets on a recovery that the conventional wisdom in recent months has deemed a long shot sentiment that now appears to be shifting towards a speedier return on investment as momentum for more in-person office work grows.

SC Properties paid $37.5M to buy the San Mateo Gateway Center, a three-building campus encompassing about 235K SF located at 1800, 1810 and 1820 Gateway Drive. The deal represented a discount of more than 50%. The seller, Kennedy Wilson, acquired the property five years ago for $87.5M.

While the Gateway Center currently is about 60% occupied, the new owner expressed confidence in a rebound of the office sector driven by renewed return-to-office mandates.

“We believe in the office sector on the peninsula as a whole and already see ‘return to office’ momentum, which will help in filling any remaining vacancy,” said SC Properties Partner Kevin Phillips, in a statement.

In Santa Clara, South Bay Development has acquired The Quad at Tasman for $51M, an office campus featuring seven buildings encompassing 404K SF. The purchase price is barely a third of the $152M that the seller, San Francisco-based TMG Partners, paid for the asset in 2020, not including the cost of an upgrade undertaken by TMG.

The growing return-to-office drumbeat got a major shot in the arm last week when Amazon CEO Andy Jassy announced in a memo that most of the tech giant’s employees will be required to be in the office five days per week starting in January.

“We’ve decided that we’re going to return to being in the office the way we were before the onset of COVID,” Jassy said in the memo. “When we look back over the last five years, we continue to believe that the advantages of being together in the office are significant.”

In a survey of 1,300 global CEOs released last week by KPMG, 83% said they expect their companies to shift back to requiring five days of office attendance within the next three years, compared to 64% who made that prediction in last year’s survey.

Financial sector titans have led the push to return to five days per week in the office, with Goldman Sachs, Citigroup, HSBC, Barclays and JPMorgan Chase all calling employees back to the office full-time.

Earlier this month, Microsoft underlined its confidence that it will continue to need a large office footprint in Silicon Valley with the $330M cash purchase of the 33-acre campus it occupies in Mountain View. The 640K SF campus, which can house up to 3,000 workers, was sold by Cupertino-based REIT Mission West Properties.

Microsoft’s deal was the second-largest real estate purchase in Santa Clara County this year, following AI chipmaker Nvidia’s $374M purchase of several office buildings at its headquarters campus in Santa Clara.