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San Jose Commercial Real Estate In-depth
San Jose, California is the third largest city in California and the 10th largest city in the United States. Regarded as the capital of the fabled Silicon Valley area, a long standing argument, San Jose is the home of some of the most successful companies in America including Cisco Systems, eBay, Adobe, and countless other technolog...
San Jose Commercial Real Estate In-depth
San Jose, California is the third largest city in California and the 10th largest city in the United States. Regarded as the capital of the fabled Silicon Valley area, a long standing argument, San Jose is the home of some of the most successful companies in America including Cisco Systems, eBay, Adobe, and countless other technology companies that occupy much of San Jose’s commercial real estate. The area’s commercial building base is spread out over several office, industrial, and R&D submarkets from the famous “Golden Triangle” in North San Jose and to the San Jose West Valley housing the likes of Apple Computer in buildings that Apple owns and mostly occupies.
Asking rents for San Jose office, industrial, retail, and R&D space have held up relatively well compared to other major cities in the US. Like its counterpart in Austin, Texas perhaps some of this has to do with the fact that many commercial leases were extended in 2006-2007 during the technology recovery and will not come due for a few more years. And, the area’s major blocks of newly available space include newly constructed Class A office projects not yet adjusted to more realistic “mark-to-market” terms. Nonetheless vacancy rates have spiked upward while rents have gone down only marginally as tenants continue to shed excess space. With unemployment doubling to 10% over the last 18 months, and with net commercial real estate occupancy negative since 2007, it is only a matter of time before asking rents in the San Jose drop far more than where they stand today.
Because it is the epicenter of Silicon Valley, San Jose commercial real estate statistics often pulls data in from other surrounding cities to offer a composite of the strength of the region. If you include areas such as Fremont and Palo Alto, the total amount of commercial office, industrial, and R&D space available midway through 2009 stands at about 55 million square feet whereas total amount of office space available within the city of San Jose is at about 5 million square feet. Things appear to have settled down a bit but the industry predicts that by 2010 total vacancy for the area may approach 60 million square feet. Because of this, tenants occupying commercial real estate in San Jose favor shorter term leases trying to time the market and achieve the best possible lease terms.
The total lack of liquidity in the market has many industry stakeholders wondering what is going to happen to many of the newly constructed buildings in the area that are in cold shell condition, and with no tenant likely to front the cost of the tenant improvements necessary to occupy the building. This issue is perhaps deepest in Sunnyvale, California where several class A office projects have recently been completed. Total available office space in Sunnyvale was roughly 850,000 square feet in 2008 and now it totals approximately 3.5 million square feet (June, 2009). Much of this increase is due to speculative projects and the addition of 1.7 million square feet of new construction. With its corporate campuses just north of Sunnyvale in Mountain View, if Google doesn’t need the newly constructed buildings it will be a small miracle if the Sunnyvale developers don’t just walk away from the projects and non-recourse loans leaving tens of millions of dollars behind.
San Jose commercial real estate is occupied by 25 companies that have 1,000 employees or more and create most of the gadgets and software used by the rest of the world. Nearly one-half of every venture capital fund has a company in its portfolio operating in the San Jose region. If there is any pickup of technology spending or heavy investment made into solar and other green technologies, San Jose commercial real estate will rebound quickly.
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