MARKETBEAT INDUSTRIAL SNAPSHOT SILICON VALLEY, CA Q3 2014 A Cushman & Wakefield Research Publication Cushman & Wakefield of California, Inc. Lic #00616335 560 South Winchester Boulevard, Suite 200 San Jose, CA 95128 www.cushmanwakefield.com/knowledge For more information, contact: Sethena Leiker, Senior Analyst 408.572.4139 [email protected] Overall Vacancy Direct Asking Rents (psf/mo) YTD Leasing Activity (sf) Q3 2013 Q3 2014 Y-O-Y CHANGE 9.0% 8.1% 90 bps $1.15 $1.31 13.9% 8,365,210 10,304,177 23.2% 12 MONTH FORECAST DIRECT RENTAL VS. VACANCY RATES 14.0% 12.0% 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% $1.40 $1.20 $1.00 $0.80 $0.60 $0.40 $0.20 $0.00 2009 2010 2011 2012 DIRECT NET RENTAL RATE 2013 Q3 2014 DIRECT VACANCY RATE LEASING ACTIVITY VS. OVERALL ABSORPTION 15.0 2.2 10.3 3.2 10.6 3.2 13.2 4.6 13.5 5.0 11.0 10.0 0.0 -5.0 -0.8 The market-wide high tech direct net asking rent maintained upward trajectory resulting in a 9.8% increase from a year ago to $1.45 per square foot per month (psf/mo) while the average asking rate for warehouse distribution space hiked 13.5% to $0.59 psf/mo. Although the weighted average asking rent for manufacturing space depreciated by 9.8% over the last year to $0.74 psf/mo, the 3.2% vacancy rate suggests the current average is heavily weighted by outdated inventory that will likely be slated for renovation or redevelopment. The highest quality space capable of accommodating contemporary function was the first to lease at the start of the recovery. Given the strong level of demand, new development and modern renovations would be welcomed by the market. High tech renovations, accelerated during the past two years and was proven successful in capturing high profile tenants such as Verizon and Ooyala. Nevertheless, it is likely we will see an uptick in renovations to reposition some of the remaining inventory in the coming year. STATS ON THE GO 9.1 The Silicon Valley industrial market is advancing on all fronts. Leasing activity was strong through the first three quarters, with a total of 10.3 million square feet (msf) leased, 23.2% more than a year ago and if the current momentum is carried through the fourth quarter, leasing figures are poised to be the highest since 2007. Demand for high tech space is on par with the third quarter of last year at 5.4 msf leased year-to-date. Although tech requirements drive the local industrial market, the need for traditional industrial space has skyrocketed in the last three quarters: 2.1 msf of manufacturing space was leased, 28.3% more than all of last year while 2.7 msf of warehouse distribution leasing activity took place during the same time reflecting a 21.1% increase over the entire previous year. Preleasing of new development was a strong theme during the third quarter: 92.1% of the 1.3 msf currently under construction has been preleased, leaving only 102,000 sf of new construction in the available inventory. -6.2 NEW DEVELOPMENT SECURES LARGEST LEASES Silicon Valley’s high tech employment gains are expected to remain strong in the near-term with a 4.4% increase projected through the end of the year, with an additional 7,400 jobs in 2015, according to Moody’s Analytics. As a result of healthy employment growth, expansion requirements will remain steady leading to positive occupancy gains. As vacancy rates continue to decline, and new construction is slow to provide relief, average asking rents will maintain steady increases. As the moderate supply under construction is scheduled for occupancy upon delivery, additional planned development projects are likely to advance. psf/mo The Silicon Valley benefited from steady employment gains through the third quarter, further strengthening the local economy. The tech sector continued to fuel the local expanding employment base by adding 10,700 jobs over the last year, 2,100 added during the third quarter according to Moody’s Analytics. The manufacturing industry added jobs, albeit at a much slower clip: the employment base expanded by 2.7% over the last year, representing 4,200 new jobs. OUTLOOK msf ECONOMIC OVERVIEW -10.0 2009 2010 LEASING ACTIVITY 2011 2012 2013 YTD 2014 OVERALL ABSORPTION The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. © 2014 Cushman & Wakefield, Inc. All rights reserved. 1 SILICON VALLEY, CA SUBMARKET INVENTORY OVERALL VACANCY RATE YTD LEASING ACTIVITY YTD USER SALES ACTIVITY Campbell 2,469,409 6.5% 49,438 3,736 0 0 29,421 (8,185) HT $1.93 DIRECT WEIGHTED AVERAGE NET RENTAL RATE MF W/D $0.97 $0.00 Cupertino 5,008,126 0.0% 6,554 0 0 0 6,554 6,554 $0.00 $0.00 $0.00 42,784,853 10.1% 2,335,840 752,154 1,304,092 0 946,267 1,047,669 $0.84 $0.73 $0.55 743,154 3.9% 16,969 0 0 0 (29,132) (29,132) $1.95 $0.00 $0.00 Milpitas 21,441,552 8.5% 887,490 98,824 0 0 55,075 77,562 $1.15 $0.77 $0.61 Mountain View 15,671,159 1.2% 562,300 749,929 0 10,870 205,530 211,178 $2.75 $1.25 $0.00 Newark 11,337,738 9.7% 1,207,935 120,747 0 574,640 312,616 368,230 $0.88 $0.69 $0.59 San Jose 77,197,076 8.8% 2,684,634 810,571 0 0 636,202 815,287 $1.51 $0.72 $0.56 Santa Clara 37,367,050 8.9% 1,089,090 196,097 0 0 (281,978) (293,155) $1.77 $0.68 $0.71 Sunnyvale 30,202,201 6.4% 1,463,927 72,382 0 155,000 (5,572) 12,211 $2.23 $1.03 $0.98 244,222,318 8.1% 10,304,177 2,804,440 1,304,092 740,510 1,874,983 2,208,219 $1.45 $0.74 $0.59 Fremont Los Gatos TOTALS * RENTAL RATES REFLECT ASKING $PSF/MONTH UNDER YTD CONSTRUCTION CONSTRUCTION COMPLETIONS YTD DIRECT YTD OVERALL NET NET ABSORPTION ABSORPTION HT= HIGH TECH MF = MANUFACTURING W/D = WAREHOUSE/DISTRIBUTION MARKET HIGHLIGHTS SIGNIFICANT Q3 2014 LEASE TRANSACTIONS SUBMARKET 49088 Fremont Boulevard TENANT PROPERTY TYPE SQUARE FEET Fremont, South of Mission Living Spaces Manufacturing 311,469 5555 Automall Parkway Fremont, Automall Warehouse/Distribution 177,041 48688 Fremont Boulevard Fremont, South of Mission Apple, Inc. Manufacturing 174,578 48490 Milmont Drive Fremont, South of Mission JFC International, Inc. Warehouse/Distribution 173,296 6375 San Ignacio Avenue San Jose, South Jabil Circuits High Technology 102,114 SIGNIFICANT Q3 2014 SALE TRANSACTIONS SUBMARKET BUYER SQUARE FEET Tasman Technology Park (14 bldgs) Milpitas Orchard Partners PURCHASE PRICE / $PSF $116,000,000 / $191 Cherry Logistics Center Newark Met Life Confidential 574,640 110-180 Tasman Drive (4 bldgs) San Jose, N. 1 Street Shorenstein Properties $100,000,000 / $235 426,170 Orchard Montague Park (6 bldgs) San Jose, N. 1 Street TA Associates $48,700,000 / $196 248,965 SIGNIFICANT Q3 2014 CONSTRUCTION COMPLETIONS SUBMARKET MAJOR TENANT COMPLETION DATE BUILDING SQUARE FEET (% LEASED) SIGNIFICANT PROJECTS UNDER CONSTRUCTION SUBMARKET MAJOR TENANT COMPLETION DATE The Crossings@880 Fremont, South of Mission Living Spaces/Apple/Pivot Interiors Q1 2015 BUILDING SQUARE FEET (% LEASED) 690,675 (85.1%) 45600 Fremont Boulevard Fremont, Irvington Q4 2014 275,000 (100%) 48490 Milmont Drive Fremont, South of Mission JFC International, Inc. Q2 2015 173,296 (100%) 0 Cushing Parkway Fremont, Bayside Q4 2014 165,000 (100%) st st Synnex Corporation 608,844 N/A Cushman & Wakefield of California, Inc. Lic #00616335 560 South Winchester Boulevard, Suite 200 San Jose, CA 95128 www.cushmanwakefield.com/knowledge For more information, contact: Sethena Leiker, Senior Analyst 408.572.4139 [email protected] Thermo Fischer Scientific Delta Products The market terms and definitions in this report are based on NAIOP standards. No warranty or representation, express or implied, is made to the accuracy or completeness of the information contained herein, and same is submitted subject to errors, omissions, change of price, rental or other conditions, withdrawal without notice, and to any special listing conditions imposed by our principals. © 2014 Cushman & Wakefield, Inc. All rights reserved. 2