Office Insight Silicon Valley | Q4 2014 Winter comes; market conditions remain red hot High-tech VC fueling additional growth amidst growing skepticism Silicon Valley brings in lion’s share of high-tech funding Silicon Valley continued its high-tech funding streak and investor confidence has yet to falter. Software still generates the bulk of funding, but cloud storage, Silicon Valley consumer goods/services and digital media have been gaining ground, exhibiting San Francisco 24.7% 22.0% a strong confidence in new generation technology. Despite YTD funding volume New York (region) 5.2% 16.0 percent higher than the 2013, analysts are beginning to express some Utah 6.4% concern over frothy conditions. A few well-funded companies have postponed Los Angeles 21.5% their public debut, raising questions regarding sustainability and growing All other HT markets 20.2% volatility. However, this has also translated into leasing activity as many startups Source: JLL Research have been focusing more on headcount growth over appeasing investors. Class A rents continue growth, heated submarkets lacking “class” Historical Class A asking rents The demand for well-located high image space has yet to ease and the number $4 of Class A options in heated submarkets continues to decline. Core submarkets are reaching dot.com highs, while the tenant overspill into Santa Clara and $2.90 smaller niche submarkets like the Campbell and the San Jose Airport have $3 $2.68 $2.66 $2.58 pushed rents up by double-digit percentages. Palo Alto and Mountain View have become so heated that the difference in rent between Class A and B product is now very slim. This reflects the weight of the importance of physical location over $2 2007 2008 2009 2010 quality as well as the strong trend of shadow space leasing. $3.61 $3.07 $3.12 2011 2012 2013 $3.75 2014 Source: JLL Research Development to continue, but not all submarkets are created equal Major expansions from several large tech tenants has prompted a rush of developers submitting proposals to city planning departments. Not since the dotcom era has the Valley seen this level of new construction. However, cities other than Palo Alto are starting to come under fire from the public and the Valley’s infrastructure is showing signs of stress. Some city municipalities have considered proposing a development cap similar to San Francisco’s Prop M to encourage housing and retail projects. Although it is not expected to be implemented, it is a sign that development could slow, especially in core submarkets. 13.8% Total vacancy 2,296,296 YTD net absorption (s.f.) 477,442 Q4 2014 net absorption (s.f.) Developers still bullish on current market conditions 2,042,432 s.f. Total square feet of projects actively under review by city planning departments in core submarkets Source: JLL Research 6.2% 12-month rent growth 4,284,425 Total under construction (s.f.) 67.1% Total preleased Current conditions – market and submarket Historical leasing activity 12,000,000 Santa Clara San Jose Airport, Campbell Downtown San Jose Fremont, Milpitas Peaking market Rising market Falling market Bottoming market North San Jose 10,253,761 10,000,000 Tenant leverage Landlord leverage Palo Alto, Cupertino, Mtn. View, Sunnyvale 8,000,000 7,841,916 7,460,664 7,621,755 5,491,637 6,000,000 4,000,000 2,000,000 0 2010 Source: JLL Research 2011 2012 2013 2014 Source: JLL Research Total net absorption (s.f.) 4,000,000 3,000,000 2,000,000 1,000,000 0 -1,000,000 -2,000,000 -3,000,000 3,706,404 1,321,041 2,296,296 1,140,589 503,468 2005 1,867,931 1,748,107 2006 2007 232,487 2008 -1,620,017 -1,876,923 2009 2010 2011 2012 2013 2014 Source: JLL Research Total vacancy rate 32.0% 27.0% 26.4% 22.0% 17.0% 12.0% 23.7% 21.9% 21.3% 17.1% 17.1% 14.7% 15.4% 12.5% 13.8% 7.0% 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Source: JLL Research Direct average asking rent ($ p.s.f.) $4.00 $3.24 $3.00 $2.00 $2.00 $1.89 2005 2006 $2.62 $2.57 $2.58 $2.65 $2.72 2008 2009 2010 2011 2012 $3.44 $2.11 $1.00 $0.00 2007 2013 2014 Source: JLL Research For more information, contact: Christan Basconcillo | +1 650 815 2213 | [email protected] ©2015 Jones Lang LaSalle IP, Inc. All rights reserved.
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