Silicon Valley’s Appetite for Construction
The Silicon Valley remains the Golden State’s powerhouse and the tech epicenter of the nation. According to the State of California Employment Development Department, the unemployment rate in Santa Clara County stands at a vibrant 2.6 percent, 70 basis points below the national average of 3.7 percent. Despite rising rents, high cost of living and unbearable traffic, the Valley remains untouched when it comes to tech talent. This unparalleled pool of expertise gives Silicon Valley its unshakable advantage that draws investors, developers and corporations alike. While displacement and out-migration in the area is a threat, demand for amenity-rich commercial property continues to outpace supply, which speaks to the strength and vitality of the market. This is supported by rising asking rents and increased construction activity, which is up 41.2 percent from prior quarter.
In fact, demand for quality commercial space is so strong that the top three deals of the quarter involved properties that are either entitled or under construction. Another trend that is fueling the Valley’s momentum is the transformation of Downtown San Jose. The Google effect has sparked a chain reaction of investors betting on the revitalization of the region in a big way. A prime example of this is Jay Paul’s $283.5 million purchase of CityView, a 579,000-square-foot campus of mixed-use office and retail, with plans to redevelop the entire block. As of October 1, there is more than 36.0 million square feet of potential development in San Jose alone.
The availability and vacancy space rates compressed in the third quarter – total availability across all product types sits at 28.9 million square feet and vacant space is at 18.6 million square feet, down 8.3 percent and 15.7 percent respectively from the same period last year.
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