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Market Report & Forecast
2016-2017Colliers International
San Jose/Silicon Valley
ii COLLIERS INTERNATIONAL | FEBRUARY 2017
Table of ContentsCOLLIERS INTERNATIONAL 2016- 2017 SILICON VALLEY
MARKET REPORT & FORECAST
TRUST HONESTY INTEGRITY RESPECT FAMILY GENEROSITY PROFESSIONALISM
Colliers International - Introduction 1
2016 Year in Review 2
Observations & Forecasts 4
Office Market 8
R&D/Flex Market 12
Industrial Market 16
Warehouse Market 20
Retail Market 24
Investment Market 26
Silicon Valley Market Statistics 28
Colliers Offices Worldwide 37
Brokerage Profiles 38
General Terms 40
Contributors
Editor and Chief Contributor: Jeff Fredericks, siorExecutive Managing Director
Contributing Writers:Jennifer Vaux - Regional Research ManagerTom Nelson - Colliers Retail Services GroupColliers Investment Services Group
Research: Colliers Research Services Group
Design and Production: Colliers Graphic Services Group
About the Newslet terThis newsletter represents the one hundred fourth in a series published by Colliers International. The information basis for this newsletter is Colliers International’s commercial property database from which the absorption-related statistics are developed and derived. Colliers maintains monthly statistics within Silicon Valley for 14 cities, 31 geographical areas and 4 commercial/industrial building types.
If you desire more data in order to analyze sub-markets not specified in this newsletter, please submit your request through your Colliers International sales representative at 408 282 3800 or write to Colliers International at 450 West Santa Clara Street, San Jose, California 95113. In addition you may send your e-mail inquiry to [email protected]. We look forward to supporting your specific needs.
1COLLIERS INTERNATIONAL | FEBRUARY 2017
We’re often asked what a Donald Trump presidency is going to mean for our Silicon Valley economy and specifically for the commercial real estate market. The truth is, nobody really knows and if you ask a year from today, we still might not know—and even when we do know, it could change overnight. But what the heck, let’s take a stab at it anyway!
Like it or not, Donald Trump is one of us—he’s one of our peeps—a commercial real estate developer is President of the United States! Time for The Art of the Deal to pave the way for an unprecedented run of success for everyone in our industry, right?
Hold on, pardner. Certainly someone in President Trump’s position knows the wide-range of economic benefits derived from things like a favorable tax structure, low interest rates, a streamlined development process, fewer business regulations, incentives for small business, lower corporate tax rates, and the like. You would think that stimulus of these sorts are just around the corner and that we can look forward to this run we are on continuing for another four years at least. That’s certainly the hope, and that’s what we’d like to see as real estate professionals in Silicon Valley.
The problem is, President Trump is not operating an office building; he’s the new leader of the free world. Donald Trump’s most significant real estate holdings aren’t big enough to be a dinghy on his new fleet of aircraft carriers. He faces a number of hurdles that are likely to temper his effectiveness, not the least of which is that an aircraft carrier is a little more difficult to maneuver than the dinghy he rode in on.
Setting politics aside, why else should we temper our enthusiasm just a bit, even though one of “our own” is in the White House?
• President Trump has bigger fish to fry: Yes, his roots are in commercial real estate, but President Trump has a host of bigger problems on his hands now: ISIS, Russia, North Korea, the Middle East, bringing jobs back to the US, naming Supreme Court Justices, and of course...that wall.
• Economic cycles are not beholden President Trump: Granted, the rest of the US has not fared so well, but Silicon Valley is on a sizzling, seven-year run that will not last forever; the stock market’s climb to 20,000 is frothy; and interest rates are on the rise, which could bring our entire industry to a screeching halt. All good things must eventually come to an end, and is Donald Trump going to stop that from happening?
• The Donald Himself: Regardless of your personal or political leanings, it is hard to argue that we don’t have a wildcard at the helm. Even if President Trump and all of his advisors make the smartest, soundest decisions of any recent administration, his daily personal choices are going to continue to fuel the flames of his adversaries—and he has a lot of adversaries. Slip just one monkey wrench into the administra-tion’s tool box—like an escalation of conflict in the Middle East, or an end to this economic cycle—and many of his fringe supporters will be climbing over each other to jump overboard, safely back into their own dinghies.
It would be nice to just sit back and enjoy the show, but with this wildcard in the deck, our advice is to keep on dealing! Great success in 2017 and thank you for your business!
SILICON VALLEY E I G HTE E NTH A N N UA L COMMERCIAL REAL ESTATETRENDS2017 CONFERENCE
LEAD SPONSOR
ADDITIONAL SPONSORS
COLLIERS INTERNATIONAL 2016 - 2017 SILICON VALLEY MARKET REPORT & FORECASTDon’t Ask Me!
Jeff Fredericks, siorExecutive Managing Director
2 COLLIERS INTERNATIONAL | FEBRUARY 2017
2016 YEAR IN REVIEWCOLLIERS INTERNATIONAL 2016 - 2017 SILICON VALLEY
MARKET REPORT & FORECAST
• San Jose City Council unanimously approves Apple’s 86-acre development initiative on North First Street in San Jose, allowing the tech giant to build 4.1 million square feet of new commercial space.
• For the first time in its history, the national Powerball lottery prize surpasses $1 billion.
• Construction is completed on Tesla’s pre-leased 302,400 square foot, warehouse building in Fremont. The electric vehicle company had inked their deal with Westcore Properties at the end of 2014.
• A crippling winter storm hits the central and eastern United States, producing several feet of snow and ice–killing 55 people.
January
February
March
April
May
June
• Super Bowl 50 is played at Levi’s Stadium in Santa Clara. The Denver Broncos defeat the Carolina Panthers by a score of 24–10.
• WeWork leases 72,560 square feet at 75 East Santa Clara Street in San Jose, opening its first Silicon Valley location. Harvest Properties is the landlord.
• Chinese developer Gemdale Corporation partners to purchase a 21.5-acre development site entitled for 415,000 square feet of office in North San Jose from Trammell Crow and Principal.
• CBRE Global Investors snaps up the Fremont manufacturing campus that is home to SolarCity. The investor pays $37.5 million, or $187 per square foot, for the 200,000 square-foot project at 47700 Kato Road and 1055 Page Avenue GI Partners is the seller.
• President Obama lands in Cuba for a meeting with Cuban President Raúl Castro, becoming the first US president to visit Cuba since 1928.
• The Department of Justice announces that it has unlocked the iPhone of a suspect in the 2015 San Bernardino attack without the help of Apple after a heated public debate over the department’s handling of encryption software in counter-terrorism efforts.
• The United States Capitol is placed under lockdown after a man opens fire near the Capitol Visitor Center. The suspect is shot by police and taken into custody.
• NetApp sells its 8-building, Mountain View office complex totaling 540,000 square feet to Google for a whopping $250 million, or $463 per square foot.
• Google leases a 283,000 square foot building at Jay Paul’s Moffett Towers.
• Pharmaceutical companies Pfizer and Allergan terminate a planned $160 billion merger because of the Obama administration’s new regulations on tax inversion. Pfizer will have to pay $400 million to Allergan for expenses in relation to the deal.
• Secretary of the Treasury, Jack Lew announces that former slave and abolitionist Harriet Tubman will replace Andrew Jackson on the twenty-dollar bill.
• Living Spaces snags 354,000 square feet in one building that is a part of Prologis’ brand new Silicon Valley Logistics Park in Fremont.
• United Parcel Service of America leases 259,479 square feet at 2055 South 7th Street in San Jose. LBA Realty is the landlord.
• Ted Cruz and John Kasich suspend their presidential campaigns, leaving Donald Trump the presumptive Republican nominee.
• President Obama becomes the first US president to visit Hiroshima, Japan, where the United States dropped an atomic bomb in 1945.
• Hamilton Plaza, a 349,550 square-foot project at 900-910 East Hamilton Avenue in Campbell, sells to an affiliate of the investment firm Angelo Gordon. The price is $137 million, or about $392 per square foot.
• Lincoln Court, a 123,529 square-foot office project at 2105 South Bascom Avenue, sells to KBS Strategic Opportunity REIT II for $51.5 million, or $416 per square foot, a new high-watermark in Campbell on a per-square-foot basis.
• Seven years after the completion of America Center’s first phase, the long-planned final phase kicks off construction. Together the six-story structures will add 450,000 square feet of office space to the campus off Highway 101 at Highway 237.
• Yahoo sells 49 acres of Santa Clara land for $250 million to Chinese tech giant, LeEco.• 29-year-old Omar Mateen opens fire at Pulse, a gay nightclub in Orlando, killing 49
people and leaving another 53 wounded. The attack surpasses the 2007 Virginia Tech massacre as the deadliest mass shooting in US history.
• In the NBA, the Eastern Conference champion Cleveland Cavaliers defeat the Western Conference champion Golden State Warriors in seven games to win their first NBA title in the Cavaliers’ 45-year history.
• A partnership of ProspectHill Group, SKS Partners and Invesco Real Estate pays $82 million, or $190 per square foot, for a sprawling collection of buildings on North First Street from semiconductor equipment maker Lam Research.
• Uber leases 140,000 square feet at 900 Arastradero Road at Stanford Research Park in Palo Alto. The deal is a sublease with VMware and is the first time the company has taken Bay Area office space south of San Francisco.
3COLLIERS INTERNATIONAL | FEBRUARY 2017
2016 YEAR IN REVIEW COLLIERS INTERNATIONAL 2016 - 2017 SILICON VALLEY MARKET REPORT & FORECAST
July
August
September
October
November
December
• Google signs a long-term lease for all of Jay Paul’s Moffett Gateway, a 612,000 square-foot office project in Sunnyvale, just a few weeks after the project reaches shell completion.
• After nearly four years, the City of Santa Clara unanimously approves Related’s $6.7 billion City Center Project. The developer receives the go-ahead to develop the 239-acre landfill site in the northern part of the city, adjacent to Levi’s Stadium.
• Yield on a ten-year note settles at 1.366 percent, the lowest on record, and the Pound crashes below $1.30 as Bretix aftershocks rattle the global market.
• Donald Trump announces Indiana Governor Mike Pence as his running mate for the Republican ticket in the 2016 presidential election.
• The United States competes at the Summer Olympics in Rio de Janeiro, Brazil and captures 46 gold, 37 silver, and 38 bronze medals.
• The US conducts its first commercial airline flight to Cuba in 50 years.
• AMD signs a long-term deal with the Irvine Company for a 220,000 square-foot building being constructed at Santa Clara Square. AMD will move their headquarters to Santa Clara after 47 years in Sunnyvale.
• SF Motors leases 83,590 square feet at 3303 Scott Boulevard, a new office building completed by Toeniskoetter Development earlier in the year.
• In the largest tech deal in history, Dell and partners MSD Partners and Silver Lake agree to buy EMC for $67 billion or $33.15 per share.
• Presidential candidates Donald Trump and Hillary Clinton take part in their first live televised debate, with an estimated audience of up to 100 million viewers. Huge!
• Nutanix makes its public debut on the Nasdaq stock market, soaring to more than twice its opening price. Shares close at $37, up 131.25 percent.
• Cloudera makes plans to relocate their Palo Alto headquarters by signing a long-term lease for 224,852 square feet at 395 Page Mill Road.
• After three years of occupying San Antonio Station, the former site of the Mayfield Mall in Mountain View, Google exercises its option to purchase, paying $225.4 million, or roughly $433 per square foot.
• Eden Housing, Grosvenor, and SummerHill sue the Town of Los Gatos over its rejection of development plans for the North 40 site at Lark Avenue and Highway 17.
• The New York Times publishes parts of Donald Trump’s 1995 tax records, which show that he suffered a $916 million loss during that year, which would have given him the ability to avoid paying income tax for up to 18 years.
• Samsung announces an official discontinuation of the Samsung Galaxy Note 7 smartphone after reports of the phone overheating and combusting, posing a severe health risk.
• AT&T announces plans to acquire media giant Time Warner for $109 billion including net liabilities.
• In one of the most shocking US elections in modern political history, Donald Trump defeats Hillary Clinton in the 2016 Presidential Election.
• In game seven of the World Series, the Chicago Cubs defeat the Cleveland Indians 8–7 in 10 innings, winning the Series 4–3 and claiming their first MLB title since 1908.
• Donald Trump agrees to pay a $25-million settlement on two class-action lawsuits and a New York state civil lawsuit regarding his now defunct, Trump University.
• Federal Realty Investment Trust breaks ground on the construction of 700 Santana Row, an eight-story, 284,000 square-foot office building scheduled to be completed by Q3 2018.
• Donald Trump becomes the first US president or president-elect since 1979 to make direct contact with the President of Taiwan, upsetting Chinese diplomats and sparking concern over whether Trump will uphold the “One China” policy.
• The Obama administration imposes sanctions against the leaders of the Russian intelligence agency GRU and expels 35 Russian operatives from the United States in response to Russia’s interference in the 2016 presidential election.
• President Obama, in a joint agreement with Prime Minister of Canada Justin Trudeau, permanently bans oil and gas drilling in most of the Arctic and Atlantic Oceans.
• Microsoft closes its acquisition of LinkedIn, valued at roughly $26 billion, the biggest in the tech-company’s history.
4 COLLIERS INTERNATIONAL | FEBRUARY 2017
Global economic growth remained soft in 2016 for numerous reasons. Generally, the culprits include structural adjustments in many countries, recurring natural disasters, and geopolitical events. In 2016, the world economy expanded by just 2.2 percent, the slowest rate of growth since the Great Recession of 2009 according to the World Economic Situation and Prospects Report published by the United Nations.
Global tech spending is expected to dip 2.0 percent to $929 billion in 2017, down from $950 billion in 2016. Much of the decline has come from slowing demand for the industry’s big products. Smartphones, for example, will account for about 47 percent of all consumer technology spending worldwide in 2017.
Even the world’s largest economy, the US didn’t notch a breakout year, but it posted strong enough gains to convince the Federal Reserve it was sufficiently fit to handle higher interest rates. This comes amid a historic presidential campaign that put a business leader in the White House. Both going into and coming out of the election, uncertainty in the economy was high, as no one really knew how the market would react to the new president’s largely vague stimulus plan.
Gross domestic product (GDP), the broadest measure of an economy’s strength, had a sluggish start to the year. GDP growth measured just over 1.0 percent during the first half of the year. Although the economy gained momentum in the third quarter–measuring 2.9 percent growth–GDP for 2016 overall came in at 1.7 percent, slow by historical standards.Going in to 2017, the Fed’s median forecast is for economic growth of 2.1 percent, up from their original forecast of 2.0 percent as of September–with the unemployment rate expected to trend lower. “We expect the economy will continue to perform well, with the job market strengthening further and inflation rising to two percent over the next couple of years,” Fed Chair Janet Yellen said.
While economic growth was lackluster during the year, hiring was not. The US economy added an average of 284,000 jobs per month in the final quarter of the year. The unemployment rate fell in 2016 to 4.7 percent from 5.0 percent. The workforce expanded by 2.1 million employees. Based on the underlying fundamentals and anticipated impacts of expected Trump policies, the six consecutive years of employment gains should continue into 2017, though at a slower pace as we near full employment. Trump’s stimulus package should further increase job growth in late 2017 and into 2018.
US consumer confidence rose during 2016 to hit a thirteen-year high in December, according to data released by the Conference Board. Rising to the highest level since August 2001, the September confidence reading was 113.7. To give perspective, the confidence reading had fallen to 25 during the past recession. The improved outlook reflects a healthier job market according to the Conference Board.
Although the economy is improving, wage growth has been sluggish, causing American consumers to rack up more and more debt each year. Indebted households today have credit card balances averaging $16,061—just shy of 2008’s high, according to a new NerdWallet report. Total household debt, including mortgages, has ballooned to $132,529, up from $88,063 in 2002. While household income has grown by 28 percent in the past 13 years, it lags the cost of living, which increased 30 percent during the period, according to the report.
The US national debt hit $19.9 trillion at the end of 2016, greater than the economic output of the entire country. At year end, the national debt had increased by more than one trillion dollars. To put that number in perspective, in order to spend one trillion dollars, you would have to
12.74%11.70%
9.30%
7.19%8.17%
0.00%2.00%4.00%6.00%8.00%
10.00%12.00%14.00%
2012 2013 2014 2015 2016
‐
5
10
15
20
25
30
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
12.74%11.70%
9.30%
7.19%8.17%
0.00%2.00%4.00%6.00%8.00%
10.00%12.00%14.00%
2012 2013 2014 2015 2016
‐
5
10
15
20
25
30
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
Silicon Valley AvailabilityAll Product Types
Silicon Valley AbsorptionAll Product Types
The Economy
OBSERVATIONS AND FORECAST OBSERVATIONS AND FORECAST
COLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
OBSERVATIONS & FORECAST
5COLLIERS INTERNATIONAL | FEBRUARY 2017
OBSERVATIONS AND FORECAST
Going in to 2017, the Fed’s median
forecast is for economic growth of
2.1 percent, up from their original
forecast of 2.0 percent as of
September–with the unemployment
rate expected to trend lower. “We
expect the economy will continue to
perform well, with the job market
strengthening further and inflation
rising to two percent over the next
couple of years,” Fed Chair Janet
Yellen said.
spend ten million dollars a day, every day for 273 years. By contrast, the debt stood at $10.6 trillion when former President Barack Obama took office in 2009. President Trump spoke out against the debt during the election, and made proposals such as the controversial idea of buying back bonds at a discount rate.
US consumer prices increased at the end of 2016 as households paid more for gasoline and rental accommodation, leading to the largest year-over-year increase in 2-1/2 years, and signaling that inflation pressures could be building. The Labor Department said its Consumer Price Index rose in the 12 months through December at 2.1 percent, up from a gain of 0.7 percent in 2015.
The US stock market was somewhat of a wild ride during 2016 for equity and bond investors alike. The stock market went out with a bang after large November and December post-election gains fueled a push on the elusive 20,000 mark. The Dow Jones Industrial Average closed 2016 at 19,762.60, a gain of 13.4 percent from the 17,425.03 close on the last trading day of 2015. The S&P 500 closed out the year at 2,238.83, up 9.5 percent from the 2015 close. The NASDAQ wrapped up 2016 at 5,383.12, a gain of just 7.5 percent from the year prior.
As for the US IPO Market, a total of 105 IPOs were conducted in 2016, down 38 percent from the 170 completed in 2015, according to Renaissance Capital. $18.8 billion of gross proceeds were raised in 2016, with a median deal size of $95 million, the lowest figures since 2009. According to the same report, only four IPOs raised more than $1 billion last year. Additionally, 2016 had the lowest number of IPO filings since 2009 with just 120 companies filing for an IPO, a near 50 percent decrease from 2015.
The two major political events of 2016 set mortgage rates moving in opposite directions. In June, the British vote to exit the European Union put rates near a record low. In November, the US election of Donald Trump had the opposite effect, sending rates above 4.0 percent for the first time in two years. By historic standards, rates are still low. In 2017 experts expect movement, but differ on where the 30-year fixed rate will land.
Estimates range from 3.75 percent to 4.6 percent– not far from where they reside today.
Sales of existing homes surged in 2016 to their highest levels since the pre-crisis days of 2006, according to a report published by the National Association of Realtors. Transactions on nearly 5.5 million existing single-family homes, townhouses, condos and co-ops were completed last year, up slightly from 2015’s 5.25 million, to mark the strongest year for sales since reaching 6.5 million in 2006. The median sale price for US homes rose 4 percent in December from a year earlier, to $232,200.
The Trump administration will inherit an economy poised for continued, if moderate growth. The planned stimulus package of tax cuts and infrastructure spending should boost growth, but at the expense of greater inflation and interest rates. Some analysts believe that Trump’s broader economic platform should benefit key sectors such as energy, finance and pharmaceuticals, but will likely reduce economic growth overall and raise odds of a recession by 2019.
In California, employers capped-off a solid year of gains, adding more than 330,000 jobs during 2016. The unemployment rate was 5.2 percent in December, down from 5.9 percent the year prior and the recession-era high of 12.4 percent in February 2010. The Golden State measured a year-over-year gain of 332,500 jobs added at a rate of 2.0 percent. According to the Bureau of Labor Statistics, the state unemployment rate is 0.5 percent higher than the national average.
Here in the Silicon Valley, the economy was booming throughout 2016. Prices in both the commercial and residential markets continued their upward climb throughout the year; the cost of talent is at an all-time high; and record mergers and acquisitions were completed. The Silicon Valley economy continued to lead the nation in matters of growth, income, innovation, and venture capital investments in 2016, and is still the largest technology hub in the nation, and the anchor for the Bay Area.
The Bay Area’s red-hot job market reached a new milestone during 2016, as jobless rates hit
their lowest level since the dot-com boom 15 years earlier. The South Bay’s jobless rate fell to 3.5 percent in November, the lowest it has been since March 2001. During the month of November, California added 13,600 jobs, with Santa Clara County employers contributing 2,900 jobs. That means Santa Clara County produced 21 percent of the state’s gains during the month—one out of every five jobs, according to the state Employment Development Department.
Job growth and a surge in wages and salaries in higher-income groups have fueled demand for housing in the Bay Area and have sent home prices and rents skyrocketing in Santa Clara County. Median home prices increased by 4.8 percent year-over-year to $961,000 from $917,000. The average sales price rose by 2.5 percent year-over-year to $1,185,940 from $1,157,360.
You don’t need to look beyond income to find evidence of Silicon Valley’s wealth. According to a report commissioned by the US Conference of Mayors, Santa Clara County has the highest median household income in the nation, at $93,500. Two other Bay Area metros also ranked in the top ten on the list, San Francisco-East Bay-San Mateo-Marin area ranked number 4 nationally, at $75,900, and Napa County came in at number 7 with $72,100.
During 2016, venture capitalists spent $24.9 billion on private companies in the Bay Area, according to the Money Tree report released by PricewaterhouseCoopers. Venture financing during 2016 was 26.9 percent less than the $34.1 billion investors spent in 2015. Venture capitalist invested in 1,484 deals in 2016, down significantly from the 1,749 deals completed in 2015 and the 1,824 deals in 2014. The fourth quarter showed considerable weakness compared with prior quarters. Venture capitalists invested $3.9 billion during the final quarter of the year, down 31.6 percent Q4 2015. It also marked the lowest venture funding investment for a quarter since the fourth quarter of 2013, when investors provided $3.51 billion in financing.
Looking ahead into 2017, a Donald Trump presidency has the investing community looking
6 COLLIERS INTERNATIONAL | FEBRUARY 2017
for lower taxes, less regulation, pro-business initiatives, and what could be a bumpy ride unwinding many of the Obama administration policies. Locally, the Silicon Valley has measured sustainable growth over the past several years and many expect that to continue in the coming year. Issues of transportation, housing affordability, and the ever-growing income inequality have lingered over this Valley for many years. Coupled with a tight job market, where tech employers struggle to find qualified workers, these challenges will continue to be major obstacles to new growth.
The Commercial Real Estate Market Having an unpredictable president in office adds another layer of unpredictability to an already unpredictable commercial real estate market. Having said that, in the near-term Colliers anticipates that technology companies will continue to flourish, and businesses that cater to technology will likewise continue their success of the last several years. There was certainly a slowdown across the board in 2016 from the record pace of 2014-2015. Each of the four product types that Colliers tracks - office, R&D, industrial, and warehouse - faced unique circumstances that impacted supply, demand, absorption, and rents in 2016. Those unique circumstances are going to be operative again in 2017, maybe even more so.
The San Francisco Bay Area continues to outpace California and most of the nation in job growth statistics. The Bay Area recorded approximately 3.3 percent job growth in 2016, compared to 2.6 percent in California and 1.67 percent in the US. Yet job growth was below the numbers recorded in 2015, and forecasts call for further slippage in 2017. Bay area job growth in the coming year is expected to be in the range of 1.6 to 2.7 percent, and those reduced numbers translate to less occupancy growth initiated in the coming year. In fact, it is quite possible that whatever occupancy gain is measured overall is going to come entirely from already-identified users occupying projects that are currently under construction.
Despite all the talk about layoffs, 2016 actually produced fewer layoffs than 2015. Global outplacement consultancy Challenger, Gray & Christmas, Inc. reports that US employers announced 493,288 job cuts through November
2016, 14.0 percent fewer than the 574,888 announced between January and November of the previous year. One in five of these job cuts were in the energy sector. The year-end job cut total is on track to be among the lowest annual totals in the last eight years since the end of the Great Recession. Corporate downsizing is expected to remain subdued in 2017, but new hire plans are also down from the prior year. This slight softening of hiring plans helps explain the increase in sublease space throughout the Valley. While on an upward trajectory, a quick study reveals that most of the companies that are subleasing space are on solid financial footing, unlike during the last downturn. Colliers doesn’t anticipate a huge influx of additional sublease space resulting from corporate downsizing.
In order to see beyond what is a very large pipeline of pending net absorption, we must take a closer look at where it’s coming from, and specifically at the pending completion and occupancy of the Apple spaceship campus. This 3.3 million square feet of office and R&D/Flex space will be occupied in 2017 and most of it is likely to be pure net absorption with minimal vacancy left in its wake. While Apple continues to be mum on that subject, they have not been shy about taking new space under long-term leases, or extending existing leases. Colliers believes that some of their more
antiquated facilities will be vacated over time, but for the most part, Apple will maintain their leased facilities in Cupertino and their higher-end facilities throughout Silicon Valley.When taking a deeper dive into the 2016 absorption results and deal flow, it’s clear that there has been a tapering of demand across the board for existing and new product alike. The number of leases signed in 2016 was down by 16.3 percent from 2015 (all Silicon Valley—all product types combined). The total square footage leased across all product types also declined by 28.3 percent.
The amount of pre-leased office space in new construction remains on solid footing at first glance. There is a decent amount of pre-leasing going on even after removing the Apple campus and Palo Alto Networks from the equation. Those two users alone are absorbing 6.07 million square feet of newly constructed office space in 2017. That leaves 2.02 million square feet of office space slated for 2017 occupancy coming from nine other unique users. Compare that to what Colliers measured at this time last year: Coming into 2016, 1.80 million square feet had been preleased to seven unique users.
Where a major difference exists is in the amount of unleased office space in new developments slated for 2017 completion as compared to 2016.
OBSERVATIONS AND FORECASTCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY MARKET REPORT & FORECAST
0.0%
10.0%
20.0%
30.0%
40.0%
50.0%
60.0%
70.0%
Office and R&D Absorption as a Percentage of Total
R&D Building Base as % of Total Building Base R&D Gross Absorption as a % of Total Gross Absorption
Office Gross Absorption as a % of Total Gross Absorption
Office and R&D Absorption as a Percentage of Total
You don’t need to look beyond
income to find evidence of
Silicon Valley’s wealth. According
to a report commissioned by the
US Conference of Mayors, Santa
Clara County has the highest
median hoUSehold income in
the nation, at $93,500. Two
other Bay Area metros also
ranked in the top ten on the
list, San Francisco-East Bay-San
Mateo-Marin area ranked
Number 4 nationally, at $75,900,
and Napa County came in at
Number 7 with $72,100.
7COLLIERS INTERNATIONAL | FEBRUARY 2017
COLLIERS INTERNATIONAL 2016 - 2017 SILICON VALLEY MARKET REPORT & FORECAST
10
15
20
25
30
35
40
45
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Squa
re F
eet i
n M
illio
ns
Improved Added Gross Absorption
Silicon Valley All Products -‐ Improved Added vs. Gross Absorp;on
Silicon Valley All Product
Silicon Valley All ProductImproved Added vs. Gross Absorption
Absorption Breakdown - Silicon Valley
Silicon Valley All ProductSILICON VALLEYAll Products ‐ Fourth Quarter 2016
Date
Available Vacant Direct
Available Occupied Direct
Available Sublease
Total Current Available
Vacancy Rate
Availability Rate
Available Under
Construction
Current and Pending
Availability
4Q 2016 17,299,884 4,585,230 5,785,041 27,670,155 5.68% 8.17% 4,825,309 32,495,4643Q 2016 16,436,280 4,732,757 4,835,495 26,004,532 5.44% 7.67% 3,336,537 29,341,0692Q 2016 16,960,551 4,439,547 4,173,932 25,574,030 5.55% 7.57% 2,637,731 28,211,7611Q 2016 16,831,156 4,331,564 3,369,648 24,532,368 5.50% 7.32% 3,089,957 27,622,3254Q 2015 15,778,403 4,773,754 3,294,229 23,846,386 5.29% 7.19% 3,781,469 27,627,8553Q 2015 17,066,973 5,294,963 3,239,939 25,601,875 5.66% 7.75% 2,523,561 28,125,4362Q 2015 18,550,876 4,687,672 2,918,014 26,156,562 6.11% 7.97% 2,493,263 28,649,8251Q 2015 21,802,498 5,080,837 3,574,538 30,457,873 7.17% 9.33% 2,330,369 32,788,242
1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016
Building Inventory: 326,615,414 328,149,714 330,492,290 331,691,213 335,360,525 337,874,776 338,874,860 338,660,273
Availability: 30,457,873 26,156,562 25,601,875 23,846,386 24,532,368 25,574,030 26,004,532 27,670,155
Absorption:Gross 7,282,983 7,233,211 7,265,565 5,871,412 5,771,428 5,397,303 5,237,864 3,984,890Net 2,400,296 3,041,367 2,420,423 1,679,187 (142,319) 1,537,624 494,423 (214,553)Effective Net 1,420,854 4,442,448 2,817,095 2,592,460 1,495,382 1,436,825 588,713 665,948
CompletedConstruction: 1,919,775 432,375 1,651,064 866,697 1,266,486 2,237,420 405,694 785,665
# of Avails by Size:
< 10K SF 1186 1106 1074 1089 1059 1117 1183 121010K to 29K SF 379 322 296 296 308 308 313 30630K to 59 K SF 140 125 120 111 112 110 115 12960K to 99K SF 91 78 80 76 73 71 83 80100K SF + 48 39 41 33 35 38 35 45
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Total Direct Available Total Sublease Available Available Under Construction
Availability BreakdownSilicon Valley - All Products
10
15
20
25
30
35
40
45
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Square Feet in Millions
Improved Added Gross Absorption
Silicon Valley All Products ‐ Improved Added vs. Gross Absorption
SILICON VALLEYAll Products ‐ Fourth Quarter 2016
Date
Available Vacant Direct
Available Occupied Direct
Available Sublease
Total Current Available
Vacancy Rate
Availability Rate
Available Under
Construction
Current and Pending
Availability
4Q 2016 17,299,884 4,585,230 5,785,041 27,670,155 5.68% 8.17% 4,825,309 32,495,4643Q 2016 16,436,280 4,732,757 4,835,495 26,004,532 5.44% 7.67% 3,336,537 29,341,0692Q 2016 16,960,551 4,439,547 4,173,932 25,574,030 5.55% 7.57% 2,637,731 28,211,7611Q 2016 16,831,156 4,331,564 3,369,648 24,532,368 5.50% 7.32% 3,089,957 27,622,3254Q 2015 15,778,403 4,773,754 3,294,229 23,846,386 5.29% 7.19% 3,781,469 27,627,8553Q 2015 17,066,973 5,294,963 3,239,939 25,601,875 5.66% 7.75% 2,523,561 28,125,4362Q 2015 18,550,876 4,687,672 2,918,014 26,156,562 6.11% 7.97% 2,493,263 28,649,8251Q 2015 21,802,498 5,080,837 3,574,538 30,457,873 7.17% 9.33% 2,330,369 32,788,242
1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016
Building Inventory: 326,615,414 328,149,714 330,492,290 331,691,213 335,360,525 337,874,776 338,874,860 338,660,273
Availability: 30,457,873 26,156,562 25,601,875 23,846,386 24,532,368 25,574,030 26,004,532 27,670,155
Absorption:Gross 7,282,983 7,233,211 7,265,565 5,871,412 5,771,428 5,397,303 5,237,864 3,984,890Net 2,400,296 3,041,367 2,420,423 1,679,187 (142,319) 1,537,624 494,423 (214,553)Effective Net 1,420,854 4,442,448 2,817,095 2,592,460 1,495,382 1,436,825 588,713 665,948
CompletedConstruction: 1,919,775 432,375 1,651,064 866,697 1,266,486 2,237,420 405,694 785,665
# of Avails by Size:
< 10K SF 1186 1106 1074 1089 1059 1117 1183 121010K to 29K SF 379 322 296 296 308 308 313 30630K to 59 K SF 140 125 120 111 112 110 115 12960K to 99K SF 91 78 80 76 73 71 83 80100K SF + 48 39 41 33 35 38 35 45
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Total Direct Available Total Sublease Available Available Under Construction
Availability BreakdownSilicon Valley - All Products
10
15
20
25
30
35
40
45
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Square Feet in Millions
Improved Added Gross Absorption
Silicon Valley All Products ‐ Improved Added vs. Gross Absorption
SILICON VALLEYAll Products ‐ Fourth Quarter 2016
Date
Available Vacant Direct
Available Occupied Direct
Available Sublease
Total Current Available
Vacancy Rate
Availability Rate
Available Under
Construction
Current and Pending
Availability
4Q 2016 17,299,884 4,585,230 5,785,041 27,670,155 5.68% 8.17% 4,825,309 32,495,4643Q 2016 16,436,280 4,732,757 4,835,495 26,004,532 5.44% 7.67% 3,336,537 29,341,0692Q 2016 16,960,551 4,439,547 4,173,932 25,574,030 5.55% 7.57% 2,637,731 28,211,7611Q 2016 16,831,156 4,331,564 3,369,648 24,532,368 5.50% 7.32% 3,089,957 27,622,3254Q 2015 15,778,403 4,773,754 3,294,229 23,846,386 5.29% 7.19% 3,781,469 27,627,8553Q 2015 17,066,973 5,294,963 3,239,939 25,601,875 5.66% 7.75% 2,523,561 28,125,4362Q 2015 18,550,876 4,687,672 2,918,014 26,156,562 6.11% 7.97% 2,493,263 28,649,8251Q 2015 21,802,498 5,080,837 3,574,538 30,457,873 7.17% 9.33% 2,330,369 32,788,242
1Q 2015 2Q 2015 3Q 2015 4Q 2015 1Q 2016 2Q 2016 3Q 2016 4Q 2016
Building Inventory: 326,615,414 328,149,714 330,492,290 331,691,213 335,360,525 337,874,776 338,874,860 338,660,273
Availability: 30,457,873 26,156,562 25,601,875 23,846,386 24,532,368 25,574,030 26,004,532 27,670,155
Absorption:Gross 7,282,983 7,233,211 7,265,565 5,871,412 5,771,428 5,397,303 5,237,864 3,984,890Net 2,400,296 3,041,367 2,420,423 1,679,187 (142,319) 1,537,624 494,423 (214,553)Effective Net 1,420,854 4,442,448 2,817,095 2,592,460 1,495,382 1,436,825 588,713 665,948
CompletedConstruction: 1,919,775 432,375 1,651,064 866,697 1,266,486 2,237,420 405,694 785,665
# of Avails by Size:
< 10K SF 1186 1106 1074 1089 1059 1117 1183 121010K to 29K SF 379 322 296 296 308 308 313 30630K to 59 K SF 140 125 120 111 112 110 115 12960K to 99K SF 91 78 80 76 73 71 83 80100K SF + 48 39 41 33 35 38 35 45
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Total Direct Available Total Sublease Available Available Under Construction
Availability BreakdownSilicon Valley - All Products
10
15
20
25
30
35
40
45
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Square Feet in Millions
Improved Added Gross Absorption
Silicon Valley All Products ‐ Improved Added vs. Gross Absorption
Office/R&D/Industrial/Warehouse Combined
OBSERVATIONS AND FORECAST
Coming into 2016 there was 1.66 million square feet of unleased office space in new construction slated for 2016 completion. Coming into 2017 there is 5.26 million square feet of unleased, shell-complete and new construction slated for 2017 completion. That is more than a threefold increase that is either going to create a great deal of opportunity for transactions in the coming year, or it’s a signal that Silicon Valley developers are becoming a tad too aggressive and that there may be some overbuilding taking place for the first time since the dot-com boom. Even if that is the case, the ongoing strong demand for state-of the-art buildings should spell success at least for those developments already underway.
The number of large-users requirements (over 20,000 square feet) is holding steady at 75. Last year at this time there were 76 active requirements that Colliers was tracking, and in January 2015 Colliers was tracking 68 active requirements. However, the square footage of those requirements has been substantially reduced. The range of requirements that Colliers is measuring today totals 9.98 million square feet at the top end, compared to 14.9 million square feet a year ago.
All told, there is a mixed-bag of data that generally points in an optimistic direction for Silicon Valley—in the near-term at least. Colliers is forecasting similar mixed-bag results in 2017 for the commercial real estate market. The demand for office space should remain on solid footing, while demand for R&D/Flex product is likely to lag. There will be plenty of demand in the industrial and warehouse sectors, but minimal supply and record-low turnover of existing space will once again hamstring absorption results in these product categories.
The office market will again be the clear winner in 2017. Net absorption is going to be very strong thanks to completion of the Apple campus, the Palo Alto Networks campus, and several other forward commitments from technology firms leasing space in under construction projects. Beyond that, occupancy gains in the office sector will be modest at best. Colliers is forecasting 6.0 million square feet of positive net absorption in 2017 on gross absorption that is likely to measure 13.0 million square feet or more.
R&D is once again the wildcard. Demand for these facilities, even when completely retrofitted, comes either from price-conscious users that are less concerned about competition for talent, or from companies that require a specific location where the best alternative happens to be an R&D building. With significantly more office space under construction than a year ago, there will be sufficient high-quality product to meet the demand of office users in most submarkets, without requiring them to settle for a subpar R&D building. As a result, Colliers is forecasting R&D gross absorption in the neighborhood of 7.0 million square feet. The pipeline of pre-improved space coming available during the year is expected to exceed that figure as technology firms continue to shift out of R&D buildings and into office buildings. R&D net absorption will most likely be negative, to the tune of 2.0 million square feet.
With 674,254 square feet of new construction recently completed and available for lease, the industrial sector will generate solid results overall, but the real story is that smaller users of industrial space are virtually locked out thanks to lack of supply. There is very little turnover of space from the existing user base and as a result, any positive net absorption is going to be almost entirely driven by occupancy of the new shell that was recently completed. Look for 500,000 square feet of positive net absorption, with gross absorption of industrial space totaling 3.2 million square feet.
As tight as the industrial market is, the warehouse market is even tighter. Users are not giving up the space they have and there is no new construction of warehouse product on the market that hasn’t already been leased. With nothing substantial coming to market, the resulting numbers are going to be weak regardless of demand. Colliers expects gross absorption in the range of 2.0 million square feet, and net absorption of warehouse space to be approximately 675,000 square feet
Office/R&D/Industrial/Warehouse Combined
8 COLLIERS INTERNATIONAL | FEBRUARY 2017
Activity was steady in the Silicon Valley office market during 2016, registering a total of 7.9 million square feet of gross absorption. Year over year, office activity was down 23.2 percent from 2015 and 11.3 percent from 2014 totals. Total demand for office space in the Silicon Valley during 2016 was mild when compared to recent years and was the lowest measured on an annual basis since 2013. It was Colliers’ expectation that demand would soften after a record 2015 and that the market would return to more normalized levels of activity.
After five consecutive years of positive net absorption, the office sector extended its streak to six years with an occupancy gain totaling 1.6 million square feet. The Silicon Valley office market has now measured an occupancy gain totaling more than 13.7 million square feet since 2011. The amount of net absorption recorded in 2016 was below Colliers’ forecasted 2.5 million-square-foot increase, yet is in line with our expectation that 2016 would bring continued growth within the Silicon Valley office market.
Although net absorption remains positive, total available space in the Silicon Valley office market increased 32.0 percent in 2016. Much of the absorption realized during the year was attributed to the completion of new construction, but some of that new construction remained unleased at year end, adding to the inventory of available space. As a result, the office sector’s availability rate increased 219 basis points to 10.6%. In 2016, the amount of pre-improved office space that was vacated during the year added up to 6.2 million square feet. This is a moderate increase from the 5.8 million square feet added to vacancy the prior year. This increase in recycled supply is not yet alarming, but it bears close watch in 2017.
The percentage of sublease space to total availability increased steadily throughout this past year from 1.2 million square feet at the end of 2015 to 2.6 million square feet at the close of 2016. Sublease space in the Silicon Valley office market now makes up 29.8 percent of total availability. The total amount of available sublease space more than doubled in 2016, up 107 percent from the end of 2015 when available sublease space made up only 19.0 percent of total availability. However, this is a far cry from its peak in Q3 2001, when available sublease space made up 54.2 percent of total availability, and totaled 5.3 million square feet.
During 2016, Colliers recorded 2.5 million square feet of office absorption that was due to users occupying
build-to-suits and other new construction from deals that were inked in earlier years. Construction and preleasing activity in the office sector is a key indicator in the Silicon Valley and we expect to see the impact of these transactions continuing in 2017 and 2018.
Average asking rents in the office sector were up 3.8 percent from 2015, and are up 20.2 percent from 2014. When comparing all completed office deals in 2016 to all completed office deals in 2015, weighted-average starting rents in the office sector increased 22.7 percent year over year.
Office Hot SpotsThe 2.0 million square feet of office gross absorption that Sunnyvale recorded was the second best on record according to Colliers’ statistics; the only year when more activity was measured in the city was in 2011 when 2.6 million square feet of gross absorption occurred. The results of 2016 are inclusive of more than 1.6 million square feet of absorption from Google, partially attributed by the completion of construction on two buildings preleased by the tech giant at Jay Paul’s Moffett Place, a deal inked in 2014 totaling 1.9 million square feet. During the year, Google
Silicon Valley Availability Office Product
Silicon Valley AbsorptionOffice Product
15.49% 15.49%
11.15%8.44%
10.63%
0
2
4
6
8
10
12
2012 2013 2014 2015 2016
Square Feet in Millions
‐
2
4
6
8
10
12
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
12.77%
11.76%
15.19%
18.73%
0% 5% 10% 15% 20%
2016
2015
2014
2013
San Jose
19.36%
11.73%
15.26%
21.12%
0% 5% 10% 15% 20% 25%
2016
2015
2014
2013
Santa Clara
6.95%
4.32%
6.08%
14.61%
0% 5% 10% 15% 20%
2016
2015
2014
2013
Palo Alto
6.13%
3.73%
1.40%
2.12%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Cupertino
4.48%
2.54%
7.40%
10.19%
0% 10% 20%
2016
2015
2014
2013
Sunnyvale
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Office Rent vs. Availability Rate TrendAvailability Rate Average Asking Full Service Rental Rates
15.49% 15.49%
11.15%8.44%
10.63%
0
2
4
6
8
10
12
2012 2013 2014 2015 2016
Square Feet in Millions
‐
2
4
6
8
10
12
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
12.77%
11.76%
15.19%
18.73%
0% 5% 10% 15% 20%
2016
2015
2014
2013
San Jose
19.36%
11.73%
15.26%
21.12%
0% 5% 10% 15% 20% 25%
2016
2015
2014
2013
Santa Clara
6.95%
4.32%
6.08%
14.61%
0% 5% 10% 15% 20%
2016
2015
2014
2013
Palo Alto
6.13%
3.73%
1.40%
2.12%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Cupertino
4.48%
2.54%
7.40%
10.19%
0% 10% 20%
2016
2015
2014
2013
Sunnyvale
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Office Rent vs. Availability Rate TrendAvailability Rate Average Asking Full Service Rental Rates
OFFICE MARKET
OFFICECOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
OFFICE MARKET
Office Trumps Again
9COLLIERS INTERNATIONAL | FEBRUARY 2017
signed leases at two other projects owned by Jay Paul–taking 612,796 square feet of space at Moffett Gateway and 283,000 square feet at Moffett Towers. As a result of the expansion of Google and others, 2016 produced an occupancy gain of more than 1.1 million square feet in Sunnyvale. This is the second consecutive year that Sunnyvale has measured an occupancy gain of more than 1.0 million square feet and the sixth consecutive year of office occupancy gain overall.
The Santa Clara office market posted modest results during 2016. At 831,627 square feet of gross absorption, Santa Clara’s level of office activity was down 56.9 percent from the 1.9 million square feet produced in 2015, and down 59.3 percent from the level measured in 2014. 2016 marked the first time in six years that the city recorded less than 1.0 million square feet of office activity. As a result of the decrease in demand, occupancy gains were nearly flat in Santa Clara during 2016, measuring just 27,021 square feet. Total available office supply in Santa Clara now measures 2.4 million square feet, up 72.5 percent from 2015 when total available supply stood at 1.4 million square feet. Aruba Networks occupied 246,765 square feet at Menlo Equities’ Santa Clara Campus on Scott Boulevard, while SF Motors leased 83,590 square feet at 3303 Scott Boulevard.
Leasing and user-sale activity in San Jose was stable during 2016. The Silicon Valley’s largest city tallied 2.5 million square feet of office gross absorption, down 19.2 percent when compared to the 3.1 million square feet measured in 2015. In line with the healthy
amount of activity during the year, San Jose posted an office occupancy gain to the tune of 419,956 square feet, the second year in a row that San Jose has recorded positive net absorption in the office sector. Notable office deals in San Jose include the completion of Apple’s build-to-suit totaling 200,000 square feet in the North San Jose submarket, Hitachi Data Systems’ 185,000 square foot build-to-suit in South San Jose, and the completion of Splunk’s new headquarters at Santana Row.
Gross absorption in the Mountain View office sector fell 45.4 percent in 2016, representing demand of 658,952 square feet. Despite the significant decrease year over year, Mountain View’s office market measured an occupancy gain to the tune of 160,065 square feet–this is now the sixth consecutive year that the city’s office market has recorded positive net absorption. Total available space in the Mountain View office market stands at only 365,378 square feet. This translates to an availability rate of 6.3 percent. During the year, Intuit occupied their build-to-suit project on Marine Parkway totaling 185,400 square feet, while BlackBerry Ltd. inked a new deal for 34,047 square feet on Fairchild Avenue.
Looking ForwardConsistent with Colliers’ forecast, 2016 produced the sixth consecutive year of occupancy growth for Silicon Valley’s office sector. That is the longest consecutive annual streak of occupancy growth for the office sector since Colliers begin tracking statistics in 1988. That streak should get extended to
seven years in 2017, but it might take smoke, mirrors, and a big bite from Apple.
Occupancy growth (net absorption) does not go into the books until space is actually tendered for occupancy, and coming into 2017 6.1 million square feet of office space is under construction with the occupant already identified. Over half of that is coming from Apple, with the completion of their spaceship campus in Cupertino that includes 3.1 million square feet of office space. Palo Alto Networks will occupy four buildings in Santa Clara totalling 950,000 square feet. With a 6.1 million-square-foot head start, the Valley is poised to shatter previous net absorption records.
Scheduled expansions coming from Apple, Palo Alto Networks, LinkedIn, Google, Netflix, and others mask some of growing economic headwinds, as well as the commercial real estate data itself, when we take a deeper dive into the numbers. On the economic side, employment growth in Silicon Valley tapered off in 2016, even though it remains ahead of California and the nation. Venture capital investment, another indicator for occupancy growth in Silicon Valley, has also been reduced in the past year. Although investment remains above pre-recession levels, VC funding for software is down 19.3 percent and for IT services, 57.5 percent, according to Beacon Economics.
The commercial real estate data also demonstrates a slower pace to the Valley’s growth, in spite of what the new construction data reveals. New construction has indeed taken center stage over the last three years, with absorption of new office space measuring 1.35 million square feet in 2014, 3.58 million square feet in 2015, and 2.55 million square feet in 2016. The doors are going to be blown off of those numbers in 2017. With 6.06 million square of new office space already spoken for, and another 4.05 million square feet that is uncommitted to but scheduled for completion in 2017, the Valley is likely to see more absorption in new office buildings during 2017 than we experienced in the prior three years combined.
So, why the caution? These new, sexy buildings are going to be occupied by some of the valley stalwarts, and certainly their success has a strong trickle-down effect for technology firms through the Valley. However, when looking at the data, there has also been a significant decline in the sheer volume of
Silicon Valley Office Rent vs. Availability Rate Trends
15.49% 15.49%
11.15%8.44%
10.63%
0
2
4
6
8
10
12
2012 2013 2014 2015 2016
Square Feet in Millions
‐
2
4
6
8
10
12
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
12.77%
11.76%
15.19%
18.73%
0% 5% 10% 15% 20%
2016
2015
2014
2013
San Jose
19.36%
11.73%
15.26%
21.12%
0% 5% 10% 15% 20% 25%
2016
2015
2014
2013
Santa Clara
6.95%
4.32%
6.08%
14.61%
0% 5% 10% 15% 20%
2016
2015
2014
2013
Palo Alto
6.13%
3.73%
1.40%
2.12%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Cupertino
4.48%
2.54%
7.40%
10.19%
0% 10% 20%
2016
2015
2014
2013
Sunnyvale
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Office Rent vs. Availability Rate TrendAvailability Rate Average Asking Full Service Rental Rates
OFFICE MARKET
Colliers is now tracking more
than 10.6 million square feet of
commercial office construction
throughout the Silicon Valley, with
even more slated to break ground
in early 2017. Approximately
60 percent of this space is
pre-committed, leaving just over
4.0 million square feet of under
construction office space available
for lease and slated to come
online in 2017.
10 COLLIERS INTERNATIONAL | FEBRUARY 2017
Selected Cities Historical Availability Rate Trends - Office
OFFICE LEASING & USER SALE ACTIVITY
SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - 2016
PROPERTY ADDRESS SQUARE FEET LANDLORD/SUBLESSOR TENANT TYPE
4440 El Camino Real, Los Altos 96,562 LinkedIn Toyota Research Group Sublease
2860 Junction Avenue, San Jose 67,537 Media Tek USA Vormetric Sublease
181 Metro Drive, San Jose 45,284 Hudson Pacific Properties Fair Isaac Lease Renewal
3335 Scott Boulevard, Santa Clara 41,892 Menlo Equities Hewlett Packard Lease Expansion
150 Almaden Boulevard, San Jose 28,824 Equus Capital Partners Adobe Systems Direct Lease
Expansion coming from
companies like Apple and
Palo Alto Networks is a
good sign for the longer-term
future even if the frenzied
activity of 2015 has slowed. And bottom line, the numbers
that Colliers is forecasting for
2017 demonstrate exactly that,
whether looking at supply,
demand, or new construction
of office space.
OFFICE MARKET OFFICE MARKET
15.49% 15.49%
11.15%8.44%
10.63%
0
2
4
6
8
10
12
2012 2013 2014 2015 2016
Square Feet in Millions
‐
2
4
6
8
10
12
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
12.77%
11.76%
15.19%
18.73%
0% 5% 10% 15% 20%
2016
2015
2014
2013
San Jose
19.36%
11.73%
15.26%
21.12%
0% 5% 10% 15% 20% 25%
2016
2015
2014
2013
Santa Clara
6.95%
4.32%
6.08%
14.61%
0% 5% 10% 15% 20%
2016
2015
2014
2013
Palo Alto
6.13%
3.73%
1.40%
2.12%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Cupertino
4.48%
2.54%
7.40%
10.19%
0% 10% 20%
2016
2015
2014
2013
Sunnyvale
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Office Rent vs. Availability Rate TrendAvailability Rate Average Asking Full Service Rental Rates
COLLIERS INTERNATIONAL 2016 - 2017 SILICON VALLEY
MARKET REPORT & FORECAST
15.49% 15.49%
11.15%8.44%
10.63%
0
2
4
6
8
10
12
2012 2013 2014 2015 2016
Square Feet in Millions
‐
2
4
6
8
10
12
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
12.77%
11.76%
15.19%
18.73%
0% 5% 10% 15% 20%
2016
2015
2014
2013
San Jose
19.36%
11.73%
15.26%
21.12%
0% 5% 10% 15% 20% 25%
2016
2015
2014
2013
Santa Clara
6.95%
4.32%
6.08%
14.61%
0% 5% 10% 15% 20%
2016
2015
2014
2013
Palo Alto
6.13%
3.73%
1.40%
2.12%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Cupertino
4.48%
2.54%
7.40%
10.19%
0% 10% 20%
2016
2015
2014
2013
Sunnyvale
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Office Rent vs. Availability Rate TrendAvailability Rate Average Asking Full Service Rental Rates
15.49% 15.49%
11.15%8.44%
10.63%
0
2
4
6
8
10
12
2012 2013 2014 2015 2016
Square Feet in Millions
‐
2
4
6
8
10
12
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
12.77%
11.76%
15.19%
18.73%
0% 5% 10% 15% 20%
2016
2015
2014
2013
San Jose
19.36%
11.73%
15.26%
21.12%
0% 5% 10% 15% 20% 25%
2016
2015
2014
2013
Santa Clara
6.95%
4.32%
6.08%
14.61%
0% 5% 10% 15% 20%
2016
2015
2014
2013
Palo Alto
6.13%
3.73%
1.40%
2.12%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Cupertino
4.48%
2.54%
7.40%
10.19%
0% 10% 20%
2016
2015
2014
2013
Sunnyvale
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Office Rent vs. Availability Rate TrendAvailability Rate Average Asking Full Service Rental Rates
15.49% 15.49%
11.15%8.44%
10.63%
0
2
4
6
8
10
12
2012 2013 2014 2015 2016
Square Feet in Millions
‐
2
4
6
8
10
12
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
12.77%
11.76%
15.19%
18.73%
0% 5% 10% 15% 20%
2016
2015
2014
2013
San Jose
19.36%
11.73%
15.26%
21.12%
0% 5% 10% 15% 20% 25%
2016
2015
2014
2013
Santa Clara
6.95%
4.32%
6.08%
14.61%
0% 5% 10% 15% 20%
2016
2015
2014
2013
Palo Alto
6.13%
3.73%
1.40%
2.12%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Cupertino
4.48%
2.54%
7.40%
10.19%
0% 10% 20%
2016
2015
2014
2013
Sunnyvale
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Office Rent vs. Availability Rate TrendAvailability Rate Average Asking Full Service Rental Rates
15.49% 15.49%
11.15%8.44%
10.63%
0
2
4
6
8
10
12
2012 2013 2014 2015 2016
Square Feet in Millions
‐
2
4
6
8
10
12
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
12.77%
11.76%
15.19%
18.73%
0% 5% 10% 15% 20%
2016
2015
2014
2013
San Jose
19.36%
11.73%
15.26%
21.12%
0% 5% 10% 15% 20% 25%
2016
2015
2014
2013
Santa Clara
6.95%
4.32%
6.08%
14.61%
0% 5% 10% 15% 20%
2016
2015
2014
2013
Palo Alto
6.13%
3.73%
1.40%
2.12%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Cupertino
4.48%
2.54%
7.40%
10.19%
0% 10% 20%
2016
2015
2014
2013
Sunnyvale
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
$4.00
$4.50
0.00%
2.00%
4.00%
6.00%
8.00%
10.00%
12.00%
14.00%
16.00%
18.00%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Office Rent vs. Availability Rate TrendAvailability Rate Average Asking Full Service Rental Rates
office transactions throughout Silicon Valley, as well as in the square footage of pre-improved space that has been leased over each of the last three years. In 2014, 7.63 million square feet of pre-improved office space was absorbed. In 2015, that number dropped by 11.0 percent to 6.79 million square, and in 2016, another 28.9 percent reduction was realized, to 4.83 million square feet. Also worth noting, the number of office transactions recorded in 2016 was down by 14.0 percent from 2015, and is at its lowest since 2010.
None of this is gloom and doom; in fact to the contrary, Silicon Valley’s office market is on very solid footing. High-end, state-of-the-art facilities are getting built to meet the demand of sophisticated, profitable companies with sustainable business models. Less leasing going on in pre-improved office buildings, combined with an accelerating amount of pre-improved space coming available each year, suggests that net absorption of pre-improved office space may end up flat in 2017.
As mentioned earlier, the Valley could very well generate 8.0 million square of occupancy growth in
new construction during the year. How much of that translates to bottom-line net absorption remains to be seen, but some of these users–and specifically Apple and Palo Alto Networks–will be phasing employees into this newly-absorbed space over an extended period of time. So, while positive net absorption will be measured all at once when Apple and Palo Alto Networks take possession of their new buildings, any offsetting negative net absorption coming from buildings they are vacating is likely to be stretched out through 2018 at least. In the longer-term this might spell negative net absorption for the office sector as soon as 2018, but 2017 numbers are going to be outstanding.
Expansion coming from companies like Apple and Palo Alto Networks is a good sign for the longer-term future even if the frenzied activity of 2015 has slowed. And bottom line, the numbers that Colliers is forecasting for 2017 demonstrate exactly that, whether looking at supply, demand, or new construction of office space.Colliers is forecasting total gross absorption of office space to be approximately 13.0 million square feet in
2017. Net absorption is a bit of a crapshoot, but Colliers is calling for a 6.0 million-square-foot occupancy gain in the office sector in the coming year.
In spite of this robust net absorption, more pre-improved space is coming to market and 4.05 million square feet of unleased new construction is likely to be added to supply in 2017. This means that we are likely to experience an increase in vacancy and availability rates during 2017. Colliers is forecasting that the office availability rate will increase to 14.5 percent by year-end, a significant uptick from the 10.6 percent availability rate we opened the year with.
With demand having peaked in 2015, and with more new construction, as well as pre-improved office space hitting the market to meet demand, the Valley could experience its first year-over-year decrease in average rental rates since 2010. Any reduction is likely to be modest however, and Colliers targets that softening in the neighborhood of 5 percent.
11COLLIERS INTERNATIONAL | FEBRUARY 2017
OFFICE MARKET
12 COLLIERS INTERNATIONAL | FEBRUARY 2017
User demand for R&D/Flex properties measured a notable decline during 2016. R&D leasing activity decreased 31.2 percent when compared to the levels measured in 2015, closing the year with a moderate 6.86 million square feet of gross absorption. This is the first year that the R&D sector has recorded less than 9.0 million square feet of activity since 2009, when realized demand measure 6.5 million square feet. Totals recorded in 2016 were less than expected and below Colliers’ forecast of 9.0 million square feet for the year.
The decline in demand translated into an occupancy loss for the year. Weighing in at 1.87 million square feet of negative net, this put an end to the five-year streak of occupancy gains measured in Silicon Valley’s R&D sector.
On the supply side, the pipeline of pre-improved R&D space that came on the market in 2016 increased from the amount of space kicked back to the market in 2015. The 8.7 million square feet of pre-improved R&D space that was vacated this past year is a 22.1 percent increase from 2015 totals. The increase in rollover space measured during the period is a demonstration of the ongoing transition from an R&D workplace to an office-centric workplace.
With subdued demand and an amplified pipeline of pre-improved space coming to market, the R&D availability rate increased modestly in 2016. Total available R&D space increased 10.5 percent from 14.4 million square feet available at the end of 2015, to 15.9 million square feet available at the end of 2016, settling at a 10.4 percent availability rate at the close of the year. Although available inventory increased during the year, the availability rate is still 59 basis points below the end of 2014, and 264 basis points less than 2013.
The weighted-average asking rent for R&D space in the final quarter of 2016 was $2.00 per square foot NNN, up 15.5 percent from the same period the prior year and 34.3 percent from the same period in 2014. Additionally, the weighted-average starting rent for R&D deals done in 2016 increased 3.2 percent from the 2015 weighted-average start rate of $1.86 per square foot NNN, to $1.92 per square foot. R&D/Flex Hot SpotsSan Jose is home to nearly one-third of the Silicon Valley’s R&D building base, and accounted for 29.1 percent of the total activity in 2016. The 1.9 million square feet of leasing
and user-sale activity in 2016 was a 44.7 percent decrease from the 2015 total of 3.6 million square feet. As a result of this decelerated activity, San Jose posted an R&D occupancy loss of 497,081 square feet in 2016. Although there was less demand during the year, 2016 nevertheless marked some notable transactions in San Jose’s R&D sector. Hitachi Data Systems completed and occupied their build-to-suit development on Cottle Road in South San Jose, totaling 150,000 square feet. Jabil Circuits inked a long-term deal for 110,542 square feet on Optical Court; and Auxin Solar leased 99,576 square feet on Via Del Oro. Notably, all three of these deals took place in South San Jose.
Sunnyvale posted lackluster results in 2016. R&D gross absorption slowed by more than 50 percent from 1.3 million square feet in 2015 to 659,421 square feet in 2016. This ended a six-year streak of annual demand greater than 1.0 million square feet in Sunnyvale’s R&D market. As a result of the decreased demand, Sunnyvale suffered an occupancy loss measuring 265,132 square feet for the year. Total available R&D space in Sunnyvale measures 1.4 million square feet and represents a 6.3 percent availability rate, up 159 basis points from one year earlier. Average asking rates in Sunnyvale were relatively flat in 2016, declining only 1.7 percent, to rest at $2.55 per square foot, NNN. Notable R&D
Silicon Valley Availability R&D Product
13.67% 13.00%
10.95%9.48%
10.36%
0
5
10
15
20
25
2012 2013 2014 2015 2016
Square Feet in Millions
(3)
‐
3
5
8
10
13
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
16.14%
15.39%
15.76%
16.65%
10% 15% 20%
2016
2015
2014
2013
San Jose
6.30%
4.71%
8.14%
9.23%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
Sunnyvale
11.46%
9.86%
12.70%
12.71%
0% 3% 6% 9% 12% 15%
2016
2015
2014
2013
Santa Clara
13.57%
14.21%
18.46%
24.25%
0% 5% 10% 15% 20% 25% 30%
2016
2015
2014
2013
Fremont
3.75%
2.79%
2.33%
5.02%
0% 2% 4% 6%
2016
2015
2014
2013
Mountain View$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
2%
4%
6%
8%
10%
12%
14%
16%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley R&D Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
Silicon Valley AbsorptionR&D Product
13.67% 13.00%
10.95%9.48%
10.36%
0
5
10
15
20
25
2012 2013 2014 2015 2016
Square Feet in Millions
(3)
‐
3
5
8
10
13
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
16.14%
15.39%
15.76%
16.65%
10% 15% 20%
2016
2015
2014
2013
San Jose
6.30%
4.71%
8.14%
9.23%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
Sunnyvale
11.46%
9.86%
12.70%
12.71%
0% 3% 6% 9% 12% 15%
2016
2015
2014
2013
Santa Clara
13.57%
14.21%
18.46%
24.25%
0% 5% 10% 15% 20% 25% 30%
2016
2015
2014
2013
Fremont
3.75%
2.79%
2.33%
5.02%
0% 2% 4% 6%
2016
2015
2014
2013
Mountain View$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
2%
4%
6%
8%
10%
12%
14%
16%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley R&D Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
R&D/Flex Effect
R&D/FLEX MARKETR&D/FLEX MARKET
R&D/FLEXCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
13COLLIERS INTERNATIONAL | FEBRUARY 2017
transactions in Sunnyvale during 2016 include Magic Leap’s lease of 61,921 square feet on Bordeaux Drive, and Infinera Corporation taking on 60,448 square feet of space on Humboldt Court.
Fremont recorded a decent amount of user activity during 2016 with 1.8 million square feet of R&D gross absorption. This is a 25.3 percent decrease from activity measured during 2015, yet higher than its 10-year average of 1.7 million square feet of annual activity. Of note in 2016, Fremont was home to four new deals greater than 100,000 square feet. ASUS Computer, Inc. Mass Precision Sheetmetal, Inc., International Technology University, and Johnson & Johnson Services all inked six-figure deals within Fremont’s city boarders during the year. Despite having roped-in a handful of big deals during 2016, Fremont’s R&D sector recorded an overall occupancy loss of 329,239 square feet. This ended a three-year streak of R&D occupancy gains for Fremont, during which time the city had posted more than 1.7 million square feet of positive net absorption.
Activity was subdued during 2016 for R&D/Fflex properties in Santa Clara. Posting 606,122 square feet of R&D gross absorption, this is a 56.6 percent decrease from the prior-year total. In line with the decrease in overall activity, it led the way for an occupancy loss of 484,802 square feet. University of California Santa Cruz signed the largest new deal in Santa Clara during the year, for 90,000 square feet on Bowers Avenue. The university’s move was as a result of getting pushed out of their old space where the Irvine Company is now under construction on their new office and retail development, Santa Clara Square. Other notable deals include Silver Peak Systems signing-on for 73,986 square feet on De La Cruz Boulevard and SiTime Corporation leasing 50,400 square feet on Patrick Henry Drive. Total available R&D space in Santa Clara sits at 2.2 million square feet, representing an 11.3 percent R&D availability rate.
Milpitas measured an increase in new leasing and user demand in its R&D/Flex sector during the year. Raking in 743,492 square feet of gross absorption, this is 23.5 percent more than totals measured in 2015 and 11.2 percent more than 2014 totals. Despite
the strong demand recorded during the year, Milpitas’ R&D/Flex sector measured an overall occupancy loss of 274,717 square feet as tenants vacated space faster than it was absorbed. 2016 ended a four-year steak of occupancy gains measured in Milpitas, during which the city had recorded an occupancy gain totaling 981,920 square feet. Total available supply in the city now measures 1.6 million square feet, up from the 1.4 million square feet that was available at the end of 2015. The R&D availability rate is 12.3 percent, up 187 basis points from one year ago. Notable transactions signed during the year include FireEye’s commitment to 189,481 square feet on McCarthy Boulevard and Aerohive Networks Inc. inking a long- term lease for 74,000 square feet of R&D/Flex space, also on McCarthy Boulevard.
Looking ForwardComing off its best year since 2011, and on the heels of having recorded more than 9.0 million square feet of activity in each of the prior four years, it seemed reasonable to forecast that 2016 would hold similar, solid results for R&D/Flex property types. In addition, the amount of recirculated space coming back onto the market in this product category was trending downward coming into last year. Finally, acquisition of vacated R&D buildings had proven to be a lucrative investment opportunity for certain owners willing to sink a lot of money into gutting and changing the use of these heretofore-obsolete buildings, in order to lease them out to office users at rents well-below that found in new office buildings.
Alas, the best laid plans didn’t come to pass. In 2016, gross absorption of R&D space fell to its lowest total since 2009. Meanwhile the supply of pre-improved space funnelling back onto the market increased to 8.64 million square feet, the most since 2011. These two factors combined to generate an occupancy loss in the R&D sector of 1.89 million square feet.
Why did that happen? First and foremost, R&D product was significantly impacted by the reduced demand from office users leasing any type of pre-improved space. As mentioned earlier, absorption of pre-improved office space was down by 28.9 percent in 2016. This had a direct impact on R&D leasing. We need to keep in mind that demand for large blocks of R&D space is largely derived from office users and that this subset of office demand was down precipitously in 2016. The rehab appetite also took a breather from the prior year, as developers recognized that some of these buildings were sitting on the market for extended periods of time.
R&D/Flex buildings are on precarious footing to start with. The original design of these buildings is a design that is no longer in demand because those uses have mostly left the area. Meanwhile, profitable and well-funded start-up companies competing for employees are in an all-out flight to quality—in part, simply to attract engineers in a tight labor market, but also because their cultures have evolved, resulting in a much different office buildout than we saw in the past.
In 2016, gross absorption of
R&D space fell to its lowest
total since 2009. Meanwhile
the supply of pre-improved
space funnelling back onto the
market increased to 8.64 million
square feet, the most since 2011.
These two factors combined to
generate an occupancy loss in
the R&D sector of 1.89 million
square feet.
Silicon Valley R&D Rent vs. Availability Rate Trends
13.67% 13.00%
10.95%9.48%
10.36%
0
5
10
15
20
25
2012 2013 2014 2015 2016
Square Feet in Millions
(3)
‐
3
5
8
10
13
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
16.14%
15.39%
15.76%
16.65%
10% 15% 20%
2016
2015
2014
2013
San Jose
6.30%
4.71%
8.14%
9.23%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
Sunnyvale
11.46%
9.86%
12.70%
12.71%
0% 3% 6% 9% 12% 15%
2016
2015
2014
2013
Santa Clara
13.57%
14.21%
18.46%
24.25%
0% 5% 10% 15% 20% 25% 30%
2016
2015
2014
2013
Fremont
3.75%
2.79%
2.33%
5.02%
0% 2% 4% 6%
2016
2015
2014
2013
Mountain View$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
2%
4%
6%
8%
10%
12%
14%
16%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley R&D Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
R&D/FLEX MARKET
14 COLLIERS INTERNATIONAL | FEBRUARY 2017
R&D LEASING & USER SALE ACTIVITY
SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - 2016
PROPERTY ADDRESS SQUARE FEET LANDLORD/SUBLESSOR TENANT TYPE
1050-1090 Arques Avenue, Sunnyvale 224,548 iStar Financial, Inc. Apple Lease Renewal
5521 Hellyer Avenue, San Jose 203,807 MWest Properties Velodyne User Sale
5900 Optical Court, San Jose 185,000 MWest Properties Stryker Lease Renewal
430-490 W. California Avenue, Sunnyvale 162,550 Principal Financial Group Raytheon Company Lease Renewal
48720-48760 Kato Road, Fremont 151,047 Exar Corporation ASUS Computer Inc. User Sale
R&D/FLEX MARKETCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY MARKET REPORT & FORECAST
Selected Cities Historical Availability Rate Trends - R&D
13.67% 13.00%
10.95%9.48%
10.36%
0
5
10
15
20
25
2012 2013 2014 2015 2016
Square Feet in Millions
(3)
‐
3
5
8
10
13
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
16.14%
15.39%
15.76%
16.65%
10% 15% 20%
2016
2015
2014
2013
San Jose
6.30%
4.71%
8.14%
9.23%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
Sunnyvale
11.46%
9.86%
12.70%
12.71%
0% 3% 6% 9% 12% 15%
2016
2015
2014
2013
Santa Clara
13.57%
14.21%
18.46%
24.25%
0% 5% 10% 15% 20% 25% 30%
2016
2015
2014
2013
Fremont
3.75%
2.79%
2.33%
5.02%
0% 2% 4% 6%
2016
2015
2014
2013
Mountain View$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
2%
4%
6%
8%
10%
12%
14%
16%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley R&D Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
Today’s technology firms
want a collaborative, open
environment with high
ceilings, views, and proximity
to public transportation—
specifically to CalTrain. Most
R&D buildings do not satisfy
all of these objectives, which
is the likely reason why the
appetite to rehab is waning for
R&D buildings while demand
for office buildings continues
to thrive.
13.67% 13.00%
10.95%9.48%
10.36%
0
5
10
15
20
25
2012 2013 2014 2015 2016
Square Feet in Millions
(3)
‐
3
5
8
10
13
2012 2013 2014 2015 2016Square Feet in Millions
Gross Absorption Net Absorption
16.14%
15.39%
15.76%
16.65%
10% 15% 20%
2016
2015
2014
2013
San Jose
6.30%
4.71%
8.14%
9.23%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
Sunnyvale
11.46%
9.86%
12.70%
12.71%
0% 3% 6% 9% 12% 15%
2016
2015
2014
2013
Santa Clara
13.57%
14.21%
18.46%
24.25%
0% 5% 10% 15% 20% 25% 30%
2016
2015
2014
2013
Fremont
3.75%
2.79%
2.33%
5.02%
0% 2% 4% 6%
2016
2015
2014
2013
Mountain View$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
2%
4%
6%
8%
10%
12%
14%
16%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley R&D Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
13.67% 13.00%
10.95%9.48%
10.36%
0
5
10
15
20
25
2012 2013 2014 2015 2016
Square Feet in Millions
(3)
‐
3
5
8
10
13
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
16.14%
15.39%
15.76%
16.65%
10% 15% 20%
2016
2015
2014
2013
San Jose
6.30%
4.71%
8.14%
9.23%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
Sunnyvale
11.46%
9.86%
12.70%
12.71%
0% 3% 6% 9% 12% 15%
2016
2015
2014
2013
Santa Clara
13.57%
14.21%
18.46%
24.25%
0% 5% 10% 15% 20% 25% 30%
2016
2015
2014
2013
Fremont
3.75%
2.79%
2.33%
5.02%
0% 2% 4% 6%
2016
2015
2014
2013
Mountain View$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
2%
4%
6%
8%
10%
12%
14%
16%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley R&D Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
13.67% 13.00%
10.95%9.48%
10.36%
0
5
10
15
20
25
2012 2013 2014 2015 2016
Square Feet in Millions
(3)
‐
3
5
8
10
13
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
16.14%
15.39%
15.76%
16.65%
10% 15% 20%
2016
2015
2014
2013
San Jose
6.30%
4.71%
8.14%
9.23%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
Sunnyvale
11.46%
9.86%
12.70%
12.71%
0% 3% 6% 9% 12% 15%
2016
2015
2014
2013
Santa Clara
13.57%
14.21%
18.46%
24.25%
0% 5% 10% 15% 20% 25% 30%
2016
2015
2014
2013
Fremont
3.75%
2.79%
2.33%
5.02%
0% 2% 4% 6%
2016
2015
2014
2013
Mountain View$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
2%
4%
6%
8%
10%
12%
14%
16%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley R&D Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
13.67% 13.00%
10.95%9.48%
10.36%
0
5
10
15
20
25
2012 2013 2014 2015 2016
Square Feet in Millions
(3)
‐
3
5
8
10
13
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
16.14%
15.39%
15.76%
16.65%
10% 15% 20%
2016
2015
2014
2013
San Jose
6.30%
4.71%
8.14%
9.23%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
Sunnyvale
11.46%
9.86%
12.70%
12.71%
0% 3% 6% 9% 12% 15%
2016
2015
2014
2013
Santa Clara
13.57%
14.21%
18.46%
24.25%
0% 5% 10% 15% 20% 25% 30%
2016
2015
2014
2013
Fremont
3.75%
2.79%
2.33%
5.02%
0% 2% 4% 6%
2016
2015
2014
2013
Mountain View$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
2%
4%
6%
8%
10%
12%
14%
16%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley R&D Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
Today’s technology firms want a collaborative, open environment with high ceilings, views, and proximity to public transportation—specifically to CalTrain. Most R&D buildings do not satisfy all of these objectives, which is the likely reason why the appetite to rehab is waning.
The optimum market dynamic for leasing R&D space is either when there is a minuscule vacancy rate in the office sector—with little or no new construction—or at times when companies are in a flight to affordability instead of a flight to quality. These market dynamics do not occur concurrently, which means that very unique conditions need to be prevailing in order for R&D absorption to thrive. Add to this, the notion that one of those dynamics—a flight to affordability—probably requires a full-blown recession, and you can see how some R&D/Flex building owners have reason to be nervous. With less leasing of pre-improved space taking place, there is a crack in the armor that
is going to first be felt in the R&D sector. As Colliers has pointed out in the past, R&D/Flex properties are no longer in the catbird’s seat, and that will be the story in 2017.
Colliers does not believe that the drop in R&D absorption that we witnessed in 2016 is an anomaly. Rather, it is likely the new benchmark until market conditions either improve substantially or become significantly worse. Neither of those conditions are likely to be met in 2017, which means that absorption results in this property type are likely to be no better in the coming year. Specifically, Colliers anticipates that pre-improved pipeline of space coming available in 2017 is going to exceed demand and therefore net absorption is likely to be negative once again.
R&D absorption will get a small boost from 302,814 square feet that Apple and Infosys Technologies intends to occupy during the year, as well as from the
probable leasing of 101,000 square feet of speculative R&D space under construction. Colliers is projecting that R&D gross absorption in total will top out at 7.0 million square feet in 2017, with net absorption expected to be in the red. Look for an occupancy loss in the R&D/Flex building category totalling approximately 2.0 million square feet by year end. These results would serve to increase the R&D availability across Silicon Valley from 10.4 percent to about 11.3 percent.
Reduced demand and increased supply is going to create a more competitive landscape for R&D space. If ownerships recognize that their buildings are at a competitive disadvantage in the marketplace, the most-probable response will be to lower rents. It would not be a shock to see average starting rents in the R&D sector to drop by 10 percent or more during 2017, even as the overall economy remains on solid footing.
15COLLIERS INTERNATIONAL | FEBRUARY 2017
R&D/FLEX MARKET
16 COLLIERS INTERNATIONAL | FEBRUARY 2017
Leasing and user-sale activity was hamstrung by lack of available inventory throughout the Silicon Valley in 2016. Industrial sector activity was down 40.1 percent from 2015 totals, measuring 2.43 million square feet during the year. Although gross absorption was down considerably in 2016, it bears noting that 2015 results were extraordinary. 2015 had marked the first time that the industrial sector exceeded the 3.0 million-square-foot threshold for gross absorption since 2005, when total activity swelled to 4.4 million square feet. In eight out of the last ten years, industrial gross absorption has failed to scale above 3.0 million square feet, a figure that was once routine.
Total available industrial space increased slightly from one year prior, but remains near its historical low. With available industrial inventory in the Silicon Valley measuring only 1.7 million square feet at the close of the year, the industrial availability rate increased by 25 basis points, but still resides at a razor-thin 2.8 percent overall, the second consecutive year that the industrial availability rate has closed out the year below 3.0 percent.
With minimal availability and nominal new development within the borders of the Silicon Valley, net absorption is hard to come by, as witnessed by an occupancy loss totaling 139,563 square feet for Silicon Valley’s industrial sector in 2016. Businesses continue to struggle to find suitable space and are holding onto what they have. As a result, fewer deals are getting done and whatever space comes available tends to lease or sell quickly.
Vacancy was so low in the industrial sector that it was going to be nearly impossible to effect any significant occupancy gain without new development. As a result, Industrial net absorption did not move the needle much, taking a casual roller-coaster ride of the kiddie variety–measuring subtle negative and then positive net absorption totals every other quarter throughout the year.
The amount of pre-improved industrial space added to available supply totaled 2.5 million square feet in 2015. This is 17.6 percent less than the 3.1 million square feet of pre-improved space that was vacated during 2015. Historically, when examining market trends, this is a very low amount of rollover space, and the slow drip of added supply is likely to continue regardless of what happens in the office and R&D sectors.
The industrial market is so impacted that it plays havoc on rental-rate averaging. The small amount of inventory means that the data set for analysis is small. There is a tendency for inferior quality, lower-rent space to dominate the available set, and those spaces languish on the market for a longer period of time. Weighted-average asking rates dipped 5.1 percent in 2016 to $1.06 per square foot, NNN, however are up 39.6 percent from averages measured in 2014. When comparing average start rents for deals closed, weighted-average start rents were within 1.0 percent of starting rates measured in 2015, resting at $0.97 per square foot, NNN, at the end of 2016.
Industrial Hot SpotsThe 950,469 square feet of industrial gross absorption that San Jose produced in 2016 was 32.6 percent and 21.6 percent less than the activity levels recorded in 2015 and 2014 respectively. This is the first time that the San Jose industrial market has measured less than 1.0 million square feet of industrial demand since 1992. San Jose ended the year with an occupancy loss measuring 137,033 square feet. That resulted in a doubling of San Jose’s miniscule industrial availability rate during the year, to 3.0 percent
Silicon Valley Availability Industrial Product
Silicon Valley AbsorptionIndustrial Product
7.70%
5.76% 5.23%
2.55% 2.81%
0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1)
‐
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
3.05%
1.52%
5.37%
4.40%
0% 2% 4% 6%
2016
2015
2014
2013
San Jose
1.26%
1.66%
2.96%
2.94%
0% 2% 4%
2016
2015
2014
2013
Santa Clara
2.97%
2.13%
8.51%
11.19%
0% 3% 6% 9% 12%
2016
2015
2014
2013
Fremont
1.07%
2.97%
3.01%
6.70%
0% 3% 6% 9%
2016
2015
2014
2013
Sunnyvale
3.23%
2.41%
0.91%
2.49%
0% 2% 4%
2016
2015
2014
2013
Mountain View$0.40
$0.47
$0.54
$0.61
$0.68
$0.75
$0.82
$0.89
$0.96
$1.03
$1.10
$1.17
$1.24
0%
1%
2%
3%
4%
5%
6%
7%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Industrial Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
7.70%
5.76% 5.23%
2.55% 2.81%
0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1)
‐
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
3.05%
1.52%
5.37%
4.40%
0% 2% 4% 6%
2016
2015
2014
2013
San Jose
1.26%
1.66%
2.96%
2.94%
0% 2% 4%
2016
2015
2014
2013
Santa Clara
2.97%
2.13%
8.51%
11.19%
0% 3% 6% 9% 12%
2016
2015
2014
2013
Fremont
1.07%
2.97%
3.01%
6.70%
0% 3% 6% 9%
2016
2015
2014
2013
Sunnyvale
3.23%
2.41%
0.91%
2.49%
0% 2% 4%
2016
2015
2014
2013
Mountain View$0.40
$0.47
$0.54
$0.61
$0.68
$0.75
$0.82
$0.89
$0.96
$1.03
$1.10
$1.17
$1.24
0%
1%
2%
3%
4%
5%
6%
7%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Industrial Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
INDUSTRIAL MARKETINDUSTRIAL MARKET
Industrial Crickets
INDUSTRIALCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
17COLLIERS INTERNATIONAL | FEBRUARY 2017
at the close of 2016, up from 1.5 percent the year before. The largest new deal recorded was on Senter Road, where Wal-Mart Stores, Inc. leased 57,783 square feet of industrial space. Presidio Development also inked a new industrial deal during the first quarter, committing to 57,280 square feet of space on Campbell Avenue.
Santa Clara’s industrial sector was relatively stable during 2016. By the close of the year, Santa Clara had generated 356,871 square feet of industrial gross absorption, a 39.5 percent decrease from activity measured during 2015. Despite the decreased demand, Santa Clara’s occupancy remained relatively flat, only increasing by a nominal, 36,902 square feet from the prior year. The 1.2 percent availability rate in Santa Clara is the lowest recorded since Colliers began tracking available industrial space in 1998. The two largest industrial deals in Santa Clara during 2015 were AMQ Solutions’ long-term lease of a 36,500 square-foot building on Walsh Avenue, and Siva Power’s lease of 25,000 square feet on Calle Del Sol.
During 2016, owner-user sales and leasing struggled to gain any momentum in the Fremont industrial market. Recording 448,684 square feet of industrial gross absorption, this is a 55.9 percent decrease from the 1.0 million square feet measured in 2015. This is the lowest amount of gross absorption in the city’s industrial market since 2010 when industrial gross absorption totalled 291,284 square feet. Net absorption was negative during the year, at 122,223
square feet. As with the rest of Silicon Valley, Fremont’s industrial availability is near its historical low, at only 295,112 square feet available overall. This translates to an industrial availability rate of just 2.9 percent. Transactions in Fremont’s industrial market signed during the year include Walmart Stores, Inc. leasing 40,830 square feet on Hotchkiss Road, and Austin Hughes USA, Inc. inking a deal for 36,067 square feet on Boyce Road.
Sunnyvale’s industrial market once again posted negligible activity during the year. The 244,835 square feet of gross absorption was up just 1.2 percent from the amount of demand recorded the year prior and up 69.2 percent from levels measured in 2014. As a result, Sunnyvale’s industrial market recorded a small occupancy gain totaling 103,691 square feet. Total available industrial space in Sunnyvale now measures just 65,260 square feet, claiming an overall availability rate of only 1.1 percent within the city at the close of 2016. The largest industrial building leased in Sunnyvale during the year was by 96,977 square feet on Kifer Road, taken down by Apple.
Looking ForwardFrankly, there is not a great deal to talk about when looking ahead at Silicon Valley’s industrial and warehouse markets. Each of these product types is in short supply. users are not giving up the space that they have, and while there may be a tremendous amount of demand, it’s impossible to say for sure because there is so little on the market to lease or buy.
There is one major distinction that the industrial market has from the warehouse market. Whereas much of the absorption in these two product categories was a by-product of new warehouse construction over the last two years, in 2017 it is the industrial product type that stands to gain from occupancy of new product. The year opens with 674,254 square feet of available shell space categorized by Colliers as “industrial.” Most or all of this space could be leased over the course of the year, which will have a huge impact on industrial gross and net absorption.
Most of this new construction is Trammel Crowe’s Midpoint @237 project in North San Jose, and it is somewhat surprising to us that none of this space was preleased coming into the new year. In fact, at various times during the latter part of 2016, there were a number of deals rumored to be in the works. Colliers had forecasted last year that industrial net absorption in 2016 would be roughly equal to the amount of leasing at Trammel Crow’s project. That proved to be true, although we didn’t expect that there would be no absorption recognized at Midpoint.
That will change 2017. Colliers anticipates that Midpoint @237 as well as Panattoni’s 111,000 square feet on Hellyer Avenue, will fulfil expectations in the coming year, and lease. These two projects are not readily divisible. On one hand that means that they do not serve to alleviate the dearth of supply in the 5,000-50,000 square-foot range, and that’s where most of the industrial demand resides. On the other hand, it’s fair to assume that industrial users requiring brand new space in excess of 75,000 square feet, probably have the resources to pay for it, as well as an appetite for it that cannot be satisfied anywhere else in Silicon Valley. All it will probably take to fill Midpoint and Hellyer Avenue are two or three large users each, and Colliers thinks those users will surface in 2017.
Taking a look at smaller size ranges—the sweet spot for industrial requirements—there is simply no product. Even south county (Morgan Hill/Gilroy) has no space to offer. What limited space does come available, leases quickly at rents never seen before in these submarkets. The overall availability rate for industrial space throughout Silicon Valley is 2.81
Silicon Valley Industrial Rent vs. Availability Rate Trends
7.70%
5.76% 5.23%
2.55% 2.81%
0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1)
‐
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
3.05%
1.52%
5.37%
4.40%
0% 2% 4% 6%
2016
2015
2014
2013
San Jose
1.26%
1.66%
2.96%
2.94%
0% 2% 4%
2016
2015
2014
2013
Santa Clara
2.97%
2.13%
8.51%
11.19%
0% 3% 6% 9% 12%
2016
2015
2014
2013
Fremont
1.07%
2.97%
3.01%
6.70%
0% 3% 6% 9%
2016
2015
2014
2013
Sunnyvale
3.23%
2.41%
0.91%
2.49%
0% 2% 4%
2016
2015
2014
2013
Mountain View$0.40
$0.47
$0.54
$0.61
$0.68
$0.75
$0.82
$0.89
$0.96
$1.03
$1.10
$1.17
$1.24
0%
1%
2%
3%
4%
5%
6%
7%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Industrial Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
INDUSTRIAL MARKET
Vacancy was so low in the
industrial sector that was going
to be nearly impossible to effect
any significant occupancy gain
without new development. As a
result, Industrial net absorption
did not move the needle much,
taking a casual roller-coaster ride
of the kiddie variety–measuring
subtle negative and then positive
net-absorption totals every other
quarter throughout the year.
18 COLLIERS INTERNATIONAL | FEBRUARY 2017
INDUSTRIAL LEASING & USER SALE ACTIVITY
SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - 2016
PROPERTY ADDRESS SQUARE FEET LANDLORD/SUBLESSOR TENANT TYPE
1001-1101 Cadillac Court, Milpitas 70,042 PS Business Parks Riverview Systems Group Lease Renewal
2708 Prune Avenue, Fremont 26,730 JMS Family Partnership Lanner Electronics Direct Lease
1800 South 10th Street, San Jose 25,850 D&D Ranch Dynamex Operations Direct Lease
18855 Adams Court, Morgan Hill 25,000 MH Adams Court, LLC PC Test Engineering Laboratory Direct Lease
5870 Monterey Road, Gilroy 22,135 Garlic Farms Annex Mission Bell Manufacturing Direct Lease
INDUSTRIAL MARKETCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY MARKET REPORT & FORECAST
Taking a look at smaller
size ranges—the sweet spot
for industrial requirements—
there is simply no product.
Even south county (Morgan
Hill/Gilroy) has no space to
offer. What limited space does
come available, leases quickly
at rents never seen before in
these submarkets. The overall
availability rate for industrial
space throughout Silicon Valley
is 2.81 percent. No multi-tenant
space is being built to meet this
demand, and the pipeline of
pre-improved space coming to
market is near its all-time low.
Selected Cities Historical Availability Rate Trends - Industrial
7.70%
5.76% 5.23%
2.55% 2.81%
0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1)
‐
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
3.05%
1.52%
5.37%
4.40%
0% 2% 4% 6%
2016
2015
2014
2013
San Jose
1.26%
1.66%
2.96%
2.94%
0% 2% 4%
2016
2015
2014
2013
Santa Clara
2.97%
2.13%
8.51%
11.19%
0% 3% 6% 9% 12%
2016
2015
2014
2013
Fremont
1.07%
2.97%
3.01%
6.70%
0% 3% 6% 9%
2016
2015
2014
2013
Sunnyvale
3.23%
2.41%
0.91%
2.49%
0% 2% 4%
2016
2015
2014
2013
Mountain View$0.40
$0.47
$0.54
$0.61
$0.68
$0.75
$0.82
$0.89
$0.96
$1.03
$1.10
$1.17
$1.24
0%
1%
2%
3%
4%
5%
6%
7%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Industrial Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
7.70%
5.76% 5.23%
2.55% 2.81%
0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1)
‐
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
3.05%
1.52%
5.37%
4.40%
0% 2% 4% 6%
2016
2015
2014
2013
San Jose
1.26%
1.66%
2.96%
2.94%
0% 2% 4%
2016
2015
2014
2013
Santa Clara
2.97%
2.13%
8.51%
11.19%
0% 3% 6% 9% 12%
2016
2015
2014
2013
Fremont
1.07%
2.97%
3.01%
6.70%
0% 3% 6% 9%
2016
2015
2014
2013
Sunnyvale
3.23%
2.41%
0.91%
2.49%
0% 2% 4%
2016
2015
2014
2013
Mountain View$0.40
$0.47
$0.54
$0.61
$0.68
$0.75
$0.82
$0.89
$0.96
$1.03
$1.10
$1.17
$1.24
0%
1%
2%
3%
4%
5%
6%
7%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Industrial Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
7.70%
5.76% 5.23%
2.55% 2.81%
0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1)
‐
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
3.05%
1.52%
5.37%
4.40%
0% 2% 4% 6%
2016
2015
2014
2013
San Jose
1.26%
1.66%
2.96%
2.94%
0% 2% 4%
2016
2015
2014
2013
Santa Clara
2.97%
2.13%
8.51%
11.19%
0% 3% 6% 9% 12%
2016
2015
2014
2013
Fremont
1.07%
2.97%
3.01%
6.70%
0% 3% 6% 9%
2016
2015
2014
2013
Sunnyvale
3.23%
2.41%
0.91%
2.49%
0% 2% 4%
2016
2015
2014
2013
Mountain View$0.40
$0.47
$0.54
$0.61
$0.68
$0.75
$0.82
$0.89
$0.96
$1.03
$1.10
$1.17
$1.24
0%
1%
2%
3%
4%
5%
6%
7%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Industrial Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
7.70%
5.76% 5.23%
2.55% 2.81%
0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1)
‐
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
3.05%
1.52%
5.37%
4.40%
0% 2% 4% 6%
2016
2015
2014
2013
San Jose
1.26%
1.66%
2.96%
2.94%
0% 2% 4%
2016
2015
2014
2013
Santa Clara
2.97%
2.13%
8.51%
11.19%
0% 3% 6% 9% 12%
2016
2015
2014
2013
Fremont
1.07%
2.97%
3.01%
6.70%
0% 3% 6% 9%
2016
2015
2014
2013
Sunnyvale
3.23%
2.41%
0.91%
2.49%
0% 2% 4%
2016
2015
2014
2013
Mountain View$0.40
$0.47
$0.54
$0.61
$0.68
$0.75
$0.82
$0.89
$0.96
$1.03
$1.10
$1.17
$1.24
0%
1%
2%
3%
4%
5%
6%
7%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Industrial Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
7.70%
5.76% 5.23%
2.55% 2.81%
0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1)
‐
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
3.05%
1.52%
5.37%
4.40%
0% 2% 4% 6%
2016
2015
2014
2013
San Jose
1.26%
1.66%
2.96%
2.94%
0% 2% 4%
2016
2015
2014
2013
Santa Clara
2.97%
2.13%
8.51%
11.19%
0% 3% 6% 9% 12%
2016
2015
2014
2013
Fremont
1.07%
2.97%
3.01%
6.70%
0% 3% 6% 9%
2016
2015
2014
2013
Sunnyvale
3.23%
2.41%
0.91%
2.49%
0% 2% 4%
2016
2015
2014
2013
Mountain View$0.40
$0.47
$0.54
$0.61
$0.68
$0.75
$0.82
$0.89
$0.96
$1.03
$1.10
$1.17
$1.24
0%
1%
2%
3%
4%
5%
6%
7%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Industrial Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
percent. No multi-tenant space is being built to meet this demand, and the pipeline of pre-improved space coming to market is near its all-time low.
Lack of available supply is also impacting owner/user sales of industrial property. “If you find it, they will come” was never truer than it is today. If an agent can unearth a seller willing to part with an industrial building, it will sell. Industrial buildings are selling at unprecedented prices. We are reporting small building sales in “average” submarkets of San Jose and Santa Clara exceeding $265 per square foot. That would have been an expensive office building just a few years ago.
The interesting thing about the industrial sector is that vacancy rates have always ranged in a much narrower gap compared to other product types. This is largely a result of an industrial building base that has declined over the years as projects get torn down to pave the way for higher and better uses. These higher rents and valuations for industrial buildings are
likely here to stay. Even an all-out recession is unlikely to result in massive amounts of industrial space coming available for sale or lease. Industrial buildings are Silicon Valley’s safe-harbor investments for those fortunate enough to own them. Industrial buildings have the added advantage of lower improvement costs associated with re-tenanting than office or R&D/Flex buildings.
At a 2.81 percent availability rate, there would be almost no chance for positive net absorption if it were not for the new construction that is currently available for lease. For that reason, Colliers estimates that industrial net absorption will be equal to, or perhaps slightly less than the amount of absorption measured in the two new industrial developments. To use a round number, Colliers anticipates approximately 500,000 square of net absorption of industrial space in 2017. The pipeline of pre-improved space coming to market will remain near a record low, probably in the neighborhood of 2.75 million square feet. Together that should be enough to generate 3.2 million square
feet of gross absorption over the course of the year. The overall availability rate will remain roughly where it is today, at or near 3.0 percent.
For years, industrial rents did not fluctuate by much. Those days are over, as evidenced by average starting rents for industrial leases signed in 2016 having jumped by 15.6 percent from one year earlier and by 35.2 percent from two years earlier. Average starting rents are likely to increase further in 2017 because higher-priced shell space is likely to skew weighted-average rent to the high side. Using an apples to apples comparison of similar space in similar locations, we can still expect industrial rents to nudge upward by another 5-10 percent in 2017.
19COLLIERS INTERNATIONAL | FEBRUARY 2017
INDUSTRIAL MARKET
20 COLLIERS INTERNATIONAL | FEBRUARY 2017
The Silicon Valley warehouse market recorded another strong year in 2016. Thanks to development started in earlier years, the warehouse sector was able to achieve 3.1 million square feet of gross absorption in 2016–the second straight year that activity has surpassed the 3.0 million-square-foot mark.
As a result of this strong demand, the warehouse sector measured an occupancy gain totalling 2.0 million square feet for the year. The occupancy gain in 2016 is the largest annual occupancy gain measured since 1994 according to Colliers’ statistics. This is now the fourth straight year of positive net absorption for Silicon Valley’s warehouse market, bringing the total occupancy gain to 4.7 million square feet since 2013.
Available warehouse space continued to decrease throughout the year, a trend that now spans more than four years. As a result of the steady decline in available space, at the end of 2016 there was only 1.1 million square feet of warehouse space available throughout the Silicon Valley. This translates to a 2.9 percent availability rate, the first time that the warehouse availability rate has dipped this low since 2000.
Also contributing to the warehouse sector’s plight was the low level of pre-improved, or rollover space, that came onto the market. In 2016, only 1.1 million square feet of rollover space was vacated, a 44.8 percent decline from the total measured in 2015, and not nearly enough to satisfy the appetite of warehouse demand, as users gobbled-up warehouse space quicker than it was returned to the market. The 1.1 million square feet vacated by warehouse users in 2016 was less than in any other year since Colliers began tracking absorption statistics in 1988.
New construction played a large role in the positive absorption results measured in the warehouse market this past year. In 2016, the Silicon Valley warehouse market tallied 926,320 square feet of absorption coming from the completion and occupancy of new construction projects. This absorption includes occupancy by Living Spaces of Prologis’ 354,540 square feet at the Silicon Valley Logistic Park, completed during the second quarter. Prologis leased the remainder of their new project to Apple, totalling
269,270 square feet, after which time the newest warehouse project in Silicon Valley was 100 percent occupied. At the beginning of 2016, construction was completed on Tesla’s 302,400 square foot, warehouse facility in Fremont. The electric vehicle company had inked their deal with Westcore Properties at the end of 2014, and the developer began construction on the new facility shortly thereafter.
The increase in activity did bring about a hike in warehouse rents. Average asking rates measured a significant increase during 2016, ending the year 26.8 percent higher than at the end of 2015, at an average of $0.87 per square-foot, NNN. Comparing start rates for deals completed in the fourth quarter of 2016 to the same quarter of 2015, weighted average start rents were up 11.9 percent year over year, totalling $0.75 per square foot, NNN.
Silicon Valley Availability Warehouse Product
Silicon Valley AbsorptionWarehouse Product
11.83%
8.75%
5.54%
3.03% 2.92%0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
4.74%
2.88%
5.34%
8.72%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
San Jose
2.05%
0.38%
3.22%
6.44%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Fremont
0.00%
7.40%
5.46%
11.51%
0% 5% 10% 15%
2016
2015
2014
2013
Milpitas
4.03%
2.83%
8.35%
6.33%
0% 3% 6% 9%
2016
2015
2014
2013
Santa Clara
0.00%
4.28%
7.65%
15.49%
0% 3% 6% 9% 12% 15% 18%
2016
2015
2014
2013
Gilroy
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Warehouse Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
11.83%
8.75%
5.54%
3.03% 2.92%0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
4.74%
2.88%
5.34%
8.72%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
San Jose
2.05%
0.38%
3.22%
6.44%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Fremont
0.00%
7.40%
5.46%
11.51%
0% 5% 10% 15%
2016
2015
2014
2013
Milpitas
4.03%
2.83%
8.35%
6.33%
0% 3% 6% 9%
2016
2015
2014
2013
Santa Clara
0.00%
4.28%
7.65%
15.49%
0% 3% 6% 9% 12% 15% 18%
2016
2015
2014
2013
Gilroy
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Warehouse Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
WAREHOUSE MARKET
Warehouse Ramps Up
COLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
WAREHOUSE
WAREHOUSE MARKET
21COLLIERS INTERNATIONAL | FEBRUARY 2017
Warehouse Hot SpotsIt was another stellar year for Fremont’s warehouse market, as it was again the only city in the Silicon Valley to reap the benefits of new warehouse construction. The 1.0 million square feet of gross absorption marked the second year in a row that the city measured more than 1.0 million square feet of new activity. As a result, Fremont posted a warehouse occupancy gain totalling 916,860 square feet. This is now the fifth year in a row that Fremont has produced occupancy growth in the warehouse sector. The 2016 results are inclusive of Apple, Living Spaces, and Tesla, as previously noted. Other notable deals include Compass Group USA leasing 41,400 square feet on Kato Road during the fourth quarter, and RK Logistics Group’s lease of 28,800 square feet on Albrae Street.
Warehouse gross absorption in San Jose checked in at 974,981 square feet in 2016. This is a 15.2 percent decrease from the 1.1 million square feet measured in 2015. It was also the fourth consecutive year that San Jose has generated an occupancy gain, measuring 292,701 square feet during the year. Total available warehouse inventory in San Jose dropped to just 796,827 square feet at the close of the year, indicating an availability rate of 4.7 percent. San Jose also claimed two warehouse deals greater than 100,000 square feet during the year. United Parcel Services of America leased 259,479 square feet on South 7th Street, while Sanmina leased 109,400 square feet of warehouse space on Brennan Street.
Milpitas gained some momentum during 2016, with 323,155 square feet of warehouse gross absorption, a 48.5 percent increase from the 217,476 square feet of demand recorded the prior year. As a result, Milpitas realized an occupancy gain to the tune of 223,052 square feet, a welcome change from the minor occupancy loss recorded during 2015. Notable warehouse deals in Milpitas include PODS’ lease of 128,173 square feet on Montague Expressway, and Flextronics International, Inc. signing-on for 100,103 square
feet on Wrigley Way. Most significantly, at the close of 2016, there was no available warehouse space remaining on the market in Milpitas, a dubious distinction that several other Silicon Valley cities are also close to achieving.
The Silicon Valley’s most southern city, Gilroy, also posted notable results during the year. The small city tallied 602,414 square feet of warehouse gross absorption. The largest new deal signed in Gilroy’s warehouse market was a long-term lease inked by Olam West Coast, Inc. for 162,830 square feet on Chestnut Street. This was the last remaining available warehouse space in Gilroy, and once the deal was signed in the third quarter, Gilroy’s warehouse availability rate also dropped to zero.
Looking ForwardThe one distinguishing characteristic between market conditions in the warehouse sector and market conditions in the industrial sector is that there is no available shell space for lease in the warehouse sector. Entering 2017, there was only one warehouse building under construction, and that 174,900 square-foot building was purchased, and will be occupied, by DBI Beverage. As a result, there should be more predictability associated with the amount of warehouse leasing that will take place over the
course of the year. Having said that, warehouse spaces tend to be larger than any other product type and therefore the timing of any spaces that are vacated or get leased can temporarily skew net absorption and vacancy rates at a given point in time.
As we suggested in the overview, a lack of available supply is the headline story for Silicon Valley’s warehouse market. The current warehouse availability rate is a minuscule 2.92 percent. There are only 30 available warehouse spaces throughout the Valley; five are in excess of 100,000 square feet. Adding fuel to the fire, only 1.1 million square feet of pre-improved warehouse space was vacated during 2016, the least amount of space that has ever been
vacated by warehouse tenants during a calendar year since Colliers began tracking warehouse statistics in 1988.
It’s hard to gauge the depth of demand in the warehouse sector, but the success of new developments over the last three years suggests that there is additional, unfulfilled, pent-up demand in this product category. And while most of the recent lessees of new warehouse product are large companies with household names, there is also a backlog of demand from small business owners who require warehouse
WAREHOUSE MARKET
Contributing to the warehouse
sector’s plight was the low level
of pre-improved, or rollover
space, that came onto the
market. In 2016, only 1.1 million
square feet of rollover space was
vacated, a 44.8 percent decline
from the total measured in 2015,
and not nearly enough to satisfy
the appetite of warehouse
demand–as users gobbled-up
warehouse space quicker than
it was returned to the market
in 2016. The 1.1 million square
feet vacated by warehouse users
in 2016 was less than in any
other year since Colliers began
tracking absorption statistics in
1988.
Silicon Valley Warehouse Rent vs. Availability Rate Trends
11.83%
8.75%
5.54%
3.03% 2.92%0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
4.74%
2.88%
5.34%
8.72%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
San Jose
2.05%
0.38%
3.22%
6.44%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Fremont
0.00%
7.40%
5.46%
11.51%
0% 5% 10% 15%
2016
2015
2014
2013
Milpitas
4.03%
2.83%
8.35%
6.33%
0% 3% 6% 9%
2016
2015
2014
2013
Santa Clara
0.00%
4.28%
7.65%
15.49%
0% 3% 6% 9% 12% 15% 18%
2016
2015
2014
2013
Gilroy
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Warehouse Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
22 COLLIERS INTERNATIONAL | FEBRUARY 2017
WAREHOUSE MARKETCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY MARKET REPORT & FORECAST
With such a small amount
of space on the market, it is
unlikely that the warehouse
sector will achieve any
positive net absorption to
speak of in 2017. What does
come available over the
course of the year is likely to
get snatched up, and Colliers
doesn’t anticipate any sudden
change to that narrow
pipeline of warehouse space
that is getting vacated. users
will have to pick amongst
the scraps for any suitable
alternatives that meet their
needs.
space, according to Colliers professionals in the industrial practice group. Many of these users are likely to exercise brokers in a lose/lose search for space that simply doesn’t exist. For this reason, Colliers recommends to its clients that they use the services of an expert with deep market knowledge and excellent research capabilities. We have been very successful at finding these “needles in a haystack.”
With such a small amount of space on the market, it is unlikely that the warehouse sector will achieve any positive net absorption to speak of in 2017. What does come available over the course of the year is likely to get snatched up, and Colliers doesn’t anticipate any sudden change
to that narrow pipeline of warehouse space that is getting vacated. Users will have to pick amongst the scraps for any suitable alternatives that meet their needs. For these reasons, Colliers anticipates that warehouse gross absorption will drop to the neighborhood of 1.75 million square in 2017, with net absorption checking in at, or below 500,000 square feet. The warehouse availability rate will remain low and could perhaps drop beneath 2.0 percent.
Warehouse rents have also risen a great deal as a result of limited pre-existing supply, combined with the first new development in this product category in nearly 20 years. As a result, average starting rents in the warehouse sector hit all-time
highs in 2016. However there is no additional new product coming online to speak of, which means that these higher rents achieved in new projects will not be a part of Colliers’ measurement in 2017. As a result, average starting rents and average asking rents may measure lower in 2017, simply as a result of the lower-quality space producing the data set. While Colliers does not expect “real” warehouse rents to trend downward, the averages we record may drop by 5 to 10 percent in 2017.
WAREHOUSE LEASING & USER SALE ACTIVITY
SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - 2016
PROPERTY ADDRESS SQUARE FEET LANDLORD/SUBLESSOR TENANT TYPE
6401 Chestnut Street, Gilroy 162,830 Howson Industries Olam West Coast, Inc Direct Lease
1057 Montague Expressway, Milpitas 128,173 WP Investments PODS Direct Lease
41893-41929 Christy Street, Fremont 120,629 PNC Realty Investors, Inc. Quanta Computer Lease Renewal
2070 South 7th Street, San Jose 120,000 Chaboya Ranch Golden State T's Lease Renewal
2070 South 7th Street, San Jose 54,000 Chaboya Ranch Splash Events Lease Renewal
Selected Cities Historical Availability Rate Trends - Warehouse
11.83%
8.75%
5.54%
3.03% 2.92%0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
4.74%
2.88%
5.34%
8.72%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
San Jose
2.05%
0.38%
3.22%
6.44%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Fremont
0.00%
7.40%
5.46%
11.51%
0% 5% 10% 15%
2016
2015
2014
2013
Milpitas
4.03%
2.83%
8.35%
6.33%
0% 3% 6% 9%
2016
2015
2014
2013
Santa Clara
0.00%
4.28%
7.65%
15.49%
0% 3% 6% 9% 12% 15% 18%
2016
2015
2014
2013
Gilroy
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Warehouse Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
11.83%
8.75%
5.54%
3.03% 2.92%0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
4.74%
2.88%
5.34%
8.72%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
San Jose
2.05%
0.38%
3.22%
6.44%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Fremont
0.00%
7.40%
5.46%
11.51%
0% 5% 10% 15%
2016
2015
2014
2013
Milpitas
4.03%
2.83%
8.35%
6.33%
0% 3% 6% 9%
2016
2015
2014
2013
Santa Clara
0.00%
4.28%
7.65%
15.49%
0% 3% 6% 9% 12% 15% 18%
2016
2015
2014
2013
Gilroy
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Warehouse Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
11.83%
8.75%
5.54%
3.03% 2.92%0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
4.74%
2.88%
5.34%
8.72%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
San Jose
2.05%
0.38%
3.22%
6.44%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Fremont
0.00%
7.40%
5.46%
11.51%
0% 5% 10% 15%
2016
2015
2014
2013
Milpitas
4.03%
2.83%
8.35%
6.33%
0% 3% 6% 9%
2016
2015
2014
2013
Santa Clara
0.00%
4.28%
7.65%
15.49%
0% 3% 6% 9% 12% 15% 18%
2016
2015
2014
2013
Gilroy
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Warehouse Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
11.83%
8.75%
5.54%
3.03% 2.92%0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
4.74%
2.88%
5.34%
8.72%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
San Jose
2.05%
0.38%
3.22%
6.44%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Fremont
0.00%
7.40%
5.46%
11.51%
0% 5% 10% 15%
2016
2015
2014
2013
Milpitas
4.03%
2.83%
8.35%
6.33%
0% 3% 6% 9%
2016
2015
2014
2013
Santa Clara
0.00%
4.28%
7.65%
15.49%
0% 3% 6% 9% 12% 15% 18%
2016
2015
2014
2013
Gilroy
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Warehouse Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
11.83%
8.75%
5.54%
3.03% 2.92%0
1
2
3
4
5
2012 2013 2014 2015 2016
Square Feet in Millions
(1.0)
(0.5)
‐
0.5
1.0
1.5
2.0
2.5
3.0
3.5
2012 2013 2014 2015 2016
Square Feet in Millions
Gross Absorption Net Absorption
4.74%
2.88%
5.34%
8.72%
0% 2% 4% 6% 8% 10%
2016
2015
2014
2013
San Jose
2.05%
0.38%
3.22%
6.44%
0% 2% 4% 6% 8%
2016
2015
2014
2013
Fremont
0.00%
7.40%
5.46%
11.51%
0% 5% 10% 15%
2016
2015
2014
2013
Milpitas
4.03%
2.83%
8.35%
6.33%
0% 3% 6% 9%
2016
2015
2014
2013
Santa Clara
0.00%
4.28%
7.65%
15.49%
0% 3% 6% 9% 12% 15% 18%
2016
2015
2014
2013
Gilroy
$0.00
$0.10
$0.20
$0.30
$0.40
$0.50
$0.60
$0.70
$0.80
$0.90
$1.00
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 2Q16 3Q16 4Q16
Silicon Valley Warehouse Rent vs. Availability Rate TrendAvailability Rate Average Asking NNN Rental Rates
23COLLIERS INTERNATIONAL | FEBRUARY 2017
24 COLLIERS INTERNATIONAL | FEBRUARY 2017
RETAIL MARKET
“Steady State” is a term used in chemistry to describe a situation where all the variables in a system are constant despite ongoing processes that endeavor to change them. And, for the variables in the system to be constant, there must be a flow through the system. Confusing? Think of cold water running into a warm bathtub that is draining. You keep the water coming in at same rate as the water draining, and the level will remain the same while the water temperature in the bathtub changes. This is the steady state! This is the term that best describes the state of Silicon Valley retail in 2016, as the retail industry (“system”) continues to evolve.
Despite growth of the e-commerce industry and the changes that come with it, Silicon Valley’s “brick & mortar” retail sector remained steady in 2016. In its annual survey of the Valley’s major trade areas, Colliers Retail Services concluded that the vacancy rate for Class A properties decreased slightly, to approximately 3.0 percent, while Class B inventory in second-tier submarkets dropped to approximately 4.0 percent. The aggregate vacancy rate in the Valley finished out the year at approximately 3.5 percent, the lowest level in the ten years since Colliers started tracking retail vacancy rates.
Regardless of record-low vacancy rates throughout all of the Valley’s trade areas and submarkets, rental rates seemed to have flattened out from 2015. This could be misleading to some degree because sought after end-cap spaces in the best shopping centers and locations increased minimally to approximately $4.55 per square foot, while inline spaces did not—or in some cases decreased slightly to approximately $4.00 per square foot. Even though vacancy in Class B properties decreased, rental rates did not. In fact, rental rates in Class B properties, dominated by rent-sensitive, “mom & pop” tenants, marginally decreased to an approximate rate of $3.00 per square foot for prime end-cap space and $2.75 per square foot for inline space.
The retail, big-box dinosaurs have remained mostly full with rents remaining in the $2.50 per-square-foot range. Average rates for rare, drive-through pads broke the $200,000-per-year level in 2016—a number skewed by a limited group of occupiers who
are able to greatly outbid the competition for prime locations.
According to the Monthly Retail Trade Report by the US Census Bureau, national retail sales stayed on a five-year upward trend and increased a full percentage point from 2015, to $410 billion. Of this total, 7.7 percent ($31.6 billion), according the Commerce Retail E-commerce Sales report, was attributed to online sales. E-commerce is the cold water in the “Steady State” example, as a higher percentage of retail sales are being done online, while brick & mortar continues to evolve.
However, it’s not just e-commerce that is changing retail, it is technology in general. Here in the Valley where technological innovation is the engine driving our economy, companies are developing technology that will continue to change the shopping experience and the physical retail landscape. For example, according to ComputerWorld Magazine, Amazon, the pioneers of e-commerce, are developing technology that will make the check-out line obsolete. No check-out line means less space needed.
Even though brick & mortar retail remains relevant with retailors able to adapt to a symbiotic physical/online store platform (“omnichannel”), technology will continue to change the physical structure of retail real estate. This most likely means that the average size requirement for retail space will continue to decrease. And, self-driving cars and ride sharing may lessen the need for parking lots and parking garages. How will developers and landlords
The Steady State of Retail
RETAIL MARKET
COLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
RETAIL
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2010 2011 2012 2013 2014 2015 2016
Historical Silicon Valley General Retail Vacancy
Vacancy Average Asking Rates (NNN)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2010 2011 2012 2013 2014 2015 2016
Historical Silicon Valley General Retail Asking Rates
Average Asking Rates (NNN)
0.00% 1.00% 2.00% 3.00% 4.00%
Sunnyvale/Cupertino
Santa Clara
Palo Alto
North San Jose
Mountain View/Los Altos
Downtown San Jose
Campbell/Los Gatos
Retail Market Vacancy Rates
$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50
Sunnyvale/Cupertino
Santa Clara
Palo Alto
North San Jose
Mountain View/Los Altos
Downtown San Jose
Campbell/Los Gatos
Retail Market Asking Rates
Historical Silicon Valley Retail Vacancy vs Asking Rate
25COLLIERS INTERNATIONAL | FEBRUARY 2017
RETAIL MARKET
adapt to these changes? What was once thought to be the distant future is now just around the corner.
Looking ForwardWhat does Silicon Valley retail real estate look like in 2017? With the election in the rearview mirror, and an unexpected outcome that Wall Street seems pretty optimistic about, many are speculating that changes to the tax code will hopefully put more money in the pockets of consumers. The Dow Jones Stock Index is pushing against 20,000, and the December Consumer Confidence Index jumped to the highest level since 2001. Landlords can be assured that demand will stay strong for their
properties, but Colliers Retail Services does not think this necessarily means that rental rates will continue to rise. Many retailers have reported that extraneous operating costs, like increasing wages and health benefit costs, along with higher rents and expenses (including property tax pass-throughs), continue to diminish the bottom line. Additionally, these same operators report that the high cost of housing is making it hard to find enough lower-wage workers.
What does this mean to landlords and developers who will have to raise rents to pay for higher financing costs due to rising interest rates? Is there a rent bubble out there ready to burst? Can we be both optimistic and concerned
at the same time? Colliers Retail Services believes that the rental market has reached a leveling point. We believe landlords will focus on property operations and keeping their tenants in place, as the marginal cost to replace them will be greater than the marginal cost to keep them. The “Steady State” of retail will continue on its steady path in 2017.
RETAIL LEASING & USER SALE ACTIVITY
SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - 2016
PROPERTY ADDRESS SQUARE FEET LANDLORD/SELLER TENANT/BUYER TYPE
1900 El Camino Real, Santa Clara 53,143 Wayne Family LLC Chick Fil A Ground Lease
625 Lincoln Avenue, San Jose 35,472 SI 52, LLC Verity Medical Group Direct Lease
2460 Charleston Road, Mountain View 30,000 TIAFF-CREF Best Buy Lease Renewal
1522 Winchester Boulevard, San Jose 19,680 Paul and Koula Pries Salvation Army Lease Renewal
3250 Park Boulevard, Palo Alto 11,762 The Sobrato Organization Kuni Redwood Motors LLC Direct Lease
2615 Keystone Avenue, Santa Clara 11,114 YMCA of Silicon Valley MMIP Automotive Direct Lease
20590 Homestead Road, Cupertino 10,652 The Sobrato Organization Pet Club Direct Lease
The rise of “omnichannel” is the
greatest trend that is disrupting
traditional retail. Omnichannel is
the convergence of e-commerce
and brick-and-mortar retail,
where retailers use their spaces
as showrooms and pickup points.
Customers can still enjoy a
limited in-store retail experience,
while utiliing the internet for
larger selections and cheaper
prices.
Retail Market Vacancy Rates
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2010 2011 2012 2013 2014 2015 2016
Historical Silicon Valley General Retail Vacancy
Vacancy Average Asking Rates (NNN)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2010 2011 2012 2013 2014 2015 2016
Historical Silicon Valley General Retail Asking Rates
Average Asking Rates (NNN)
0.00% 1.00% 2.00% 3.00% 4.00%
Sunnyvale/Cupertino
Santa Clara
Palo Alto
North San Jose
Mountain View/Los Altos
Downtown San Jose
Campbell/Los Gatos
Retail Market Vacancy Rates
$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50
Sunnyvale/Cupertino
Santa Clara
Palo Alto
North San Jose
Mountain View/Los Altos
Downtown San Jose
Campbell/Los Gatos
Retail Market Asking Rates
Retail Market Asking Rates
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
2010 2011 2012 2013 2014 2015 2016
Historical Silicon Valley General Retail Vacancy
Vacancy Average Asking Rates (NNN)
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
$3.00
$3.50
2010 2011 2012 2013 2014 2015 2016
Historical Silicon Valley General Retail Asking Rates
Average Asking Rates (NNN)
0.00% 1.00% 2.00% 3.00% 4.00%
Sunnyvale/Cupertino
Santa Clara
Palo Alto
North San Jose
Mountain View/Los Altos
Downtown San Jose
Campbell/Los Gatos
Retail Market Vacancy Rates
$0.00 $0.50 $1.00 $1.50 $2.00 $2.50 $3.00 $3.50 $4.00 $4.50
Sunnyvale/Cupertino
Santa Clara
Palo Alto
North San Jose
Mountain View/Los Altos
Downtown San Jose
Campbell/Los Gatos
Retail Market Asking Rates
26 COLLIERS INTERNATIONAL | FEBRUARY 2017
INVESTMENT MARKET
In 2016, Silicon Valley continued to thrive as one of the nation’s most attractive markets for real estate investment. Tenant demand, largely driven by tech companies, remained steady as property owners experienced continued rent growth for the first two quarters, levelling off in the third, and a slight decline in asking rates towards the end of the year. Vacancy rates on the other hand were the opposite, rising in the first two quarters and decreasing into the end of the year. Following two straight years of nearly flat transaction volume, and a peak in 2015, investors saw a moderate decrease in the capital deployed within Silicon Valley in 2016 by 34 percent year-over-year. Transaction volume neared $5.4 billion in 2013 and 2014, $9.9 billion in 2015, and $6.5 billion in 2016.
In addition to the decreased transaction volume, average sale prices in Silicon Valley across the office, R&D, and industrial sectors dipped slightly following 2015’s meteoric 31 percent increase over 2014. The average per-square-foot cost of owning Silicon Valley real estate fell to $306 per square foot, a 12 percent decrease over the previous year, yet still 15 percent higher than 2014’s average.
As would be expected, the dip in per-square-foot values did not stop some of the Valley’s main players. Hines REIT, Inc. sold a stake of their west coast portfolio to Blackstone for $76 million; Brookfield Property Partners sold a 7-building office/flex portfolio in San Jose to Westbrook Partners/Four Corners Properties; and Alecta sold the Stanford Research Park in Palo Alto to Blackstone for $1,398 per square foot. Several other investors were drawn to Silicon Valley where they claimed quality assets within entire submarkets, the likes of which included Hudson Pacific Properties in Palo Alto and the Airport area of San Jose, CBRE
Global Investors, Embarcadero Capital in Sunnyvale, and Madison Marquette in Cupertino.
Similar to 2015, the strong macro-economic story in the Silicon Valley fueled steady leasing activity. Currently an estimated 10.6 million square feet of office space is under construction with potential development reaching an astounding 60 million square feet of proposed developments. Of the projects currently under construction, just over 60 percent is
already pre-committed. In 2016, the low interest-rate environment continued to keep cap rates down, further encouraging investors to maintain record levels of institutional and private capital.
Despite the moderate drop in average price-per-foot in 2016, investors were willing to accept slightly lower returns. Average capitalization rates dropped for the sixth straight year to 5.4 percent, a full, 30 basis points below 2015 levels, and a sharp decrease from the 8.1 percent average initial return that investors commanded at the cycle peak in 2010. Regardless, core buyers remained active and were willing to accept these lower returns, viewing the profits as commensurate with the quality of real estate and tenant credit Silicon Valley has to offer.
INVESTMENT MARKETINVESTMENT MARKET
2016: Back to “Normal”?
Volume
CAP
Price
$0
$2
$4
$6
$8
$10
$12
2009 2010 2011 2012 2013 2014 2015 2016
Billion
s of D
ollars
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
2009 2010 2011 2012 2013 2014 2015 2016
$50
$100
$150
$200
$250
$300
$350
$400
2009 2010 2011 2012 2013 2014 2015 2016
Price pe
r Squ
are Fo
ot
Transaction Volume
COLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
INVESTMENT
Volume
CAP
Price
$0
$2
$4
$6
$8
$10
$12
2009 2010 2011 2012 2013 2014 2015 2016
Billion
s of D
ollars
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
2009 2010 2011 2012 2013 2014 2015 2016
$50
$100
$150
$200
$250
$300
$350
$400
2009 2010 2011 2012 2013 2014 2015 2016
Price pe
r Squ
are Fo
ot
Average Price Per Foot
Volume
CAP
Price
$0
$2
$4
$6
$8
$10
$12
2009 2010 2011 2012 2013 2014 2015 2016
Billion
s of D
ollars
4.0%
4.5%
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
2009 2010 2011 2012 2013 2014 2015 2016
$50
$100
$150
$200
$250
$300
$350
$400
2009 2010 2011 2012 2013 2014 2015 2016
Price pe
r Squ
are Fo
ot
Average Cap Rate
27COLLIERS INTERNATIONAL | FEBRUARY 2017
INVESTMENT MARKET
The CRE debt capital markets in
2017 will become increasingly
more difficult for borrowers to
navigate as lenders continue
to digest the new financial
regulatory framework and
the impacts of the presidential
election begin to take shape, and
therefore it is imperative that
investors look to the expertise
provided by the Colliers debt
capital markets team to achieve
the most accretive and creative
debt capital markets solutions
available in the market.
Looking forward Deal Volume:Colliers International predicts sales volume will dip slightly, as it did in 2016, yet still continue at a robust pace. Demand from value-add investors continues to outweigh supply and institutional capital continues to view Silicon Valley core assets as a relative safe haven due to our strong local economy and best-in-class tenant makeup. The sweet spot, however, should be core-plus investments.
Key Metrics:Although slightly tempered, local leasing fundamentals remain strong, with the Valley continuing its reign as the world’s leader in technological advancement and venture capital investment.
Even with the Federal Reserve increasing key interest rates in Q4 2016 and rates expected to continue a slow, but steady increase throughout 2017, interest rates remain at historical lows overall. Core assets and single-tenant assets backed by stable income from long-term leases will continue to garner cap rates around 5.50-5.75 percent.
Value-add investors will continue to seek IRR’s in the mid-to-high teens, but may be a bit more conservative in their underwriting, especially in regards to the areas of rental growth and lease-up time. Core-plus investors will seek low-to-mid teen returns with a holding period between 5-7 years.
Price Per Square Foot:With the continuation of relatively low cap rates and high-rent leases resulting in large NOI’s, price-per-square-foot numbers are expected to remain near current levels throughout Silicon Valley through 2017.
Debt Market:Despite mid-year volatility in the CMBS markets, 2016 total commercial-loan origination was on par with 2015 at the low-$500-billion mark across all asset classes– demonstrating a continued wealth of liquidity in the CRE debt capital markets. The availability of debt capital in 2017 is expected to remain strong, however the institution of new financial regulations adopted by Dodd Frank and Basel III are expected to shift additional market share from traditional (bank, conduit, life company) to non-traditional lending sources. As CRE fundamentals remain strong, capital will continue to flow to CRE investors and developers, albeit at a more cautious pace as lenders ponder our current position in the cycle. Furthermore, the long-predicted rise in interest rates commenced with the Fed’s announcement in December (only the second rate increase in the past decade), with further indication of additional rate hikes in 2017. The recent presidential election results will also likely support further rate increases as promises of significant tax cuts and lofty infrastructure spending will put upward pressure on inflation.
While setting new record lows mid-year, immediately following the UK Brexit vote, current benchmark 10-year Treasury yields have remained fairly steady in the mid-2 percent range–still reflecting an historically-low interest-rate environment. Moderately leveraged transactions (50-60 percent LTV) in primary and secondary markets are achieving pricing in the high 3 percent to low 4 percent range on long-term ,fixed-rate executions for stabilized product, while higher leverage (65-75 percent LTV) deals are getting priced in the mid-to-high 4 percent range. Current rates reflect an increase in total borrowing costs of 10-15 percent year-over-year. Higher leverage can be achieved through the addition of mezzanine financing and/or preferred equity (taking the total “debt” capital stack up to 80-90 percent LTV), generally priced in the 8-12 percent range.
INVESTMENT SALES ACTIVITY
SELECTED COLLIERS INTERNATIONAL TRANSACTIONS - 2016
PROPERTY ADDRESS SQUARE FEET SELLER BUYER TYPE
190-250 Tasman Drive, San Jose 287,371 TMG Partners KU Education Office/R&D
Hannover Logistics Park, Fremont 163,317 CRP Industries TA Realty Associates Industrial
2105 S Bascom Avenue, Campbell 123,529 Carlyle Group KBS SOR II Lincoln Court, LLC Office
1210 California Circle, Milpitas 120,576 iStar CTL, L.P. KB Homes South Bay Inc Development Sale
Oak Creek Technology Place, Milpitas 111,685 Rialto Capital Julia Handley Office/R&D
100 Century Center Court, San Jose 107,107 Sleepy Hollow Investment Company Briggs Development Office
28 COLLIERS INTERNATIONAL | FEBRUARY 2017
SILICON VALLEY MARKET STATISTICS
Silicon Valley Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 8,810,721 10.63% 15,943,789 10.38% 1,747,971 2.81% 1,167,674 2.92% 27,670,155 8.17% New Construction 785,665 0 0 0 785,665 Net Absorption 501,669 -620,131 -112,726 16,635 -214,553 Gross Absorption 1,889,975 1,378,794 438,848 277,273 3,984,890
3Q16 Total Available 7,914,868 9.60% 15,185,661 9.85% 1,881,096 3.03% 1,022,907 2.54% 26,004,532 7.67% New Construction 255,694 150,000 0 0 405,694 Net Absorption 610,155 -433,456 -112,545 430,269 494,423 Gross Absorption 2,391,831 1,740,669 418,179 687,185 5,237,864
2Q16 Total Available 8,378,130 10.26% 14,444,529 9.36% 1,407,190 2.28% 1,344,181 3.34% 25,574,030 7.57% New Construction 1,144,432 43,468 0 1,049,520 2,237,420 Net Absorption 38,528 143,895 142,722 1,212,479 1,537,624 Gross Absorption 1,255,137 1,958,199 612,826 1,571,141 5,397,303
1Q16 Total Available 7,018,693 8.68% 14,433,251 9.41% 1,432,746 2.33% 1,647,678 4.17% 24,532,368 7.32% New Construction 964,086 0 0 302,400 1,266,486 Net Absorption 532,225 -963,565 -57,014 346,035 -142,319 Gross Absorption 2,427,656 1,786,544 968,738 588,490 5,771,428
TOTALS
New Construction 3,149,877 193,468 0 1,351,920 4,695,265 Net Absorption 1,682,577 -1,873,257 -139,563 2,005,418 1,675,175 Gross Absorption 7,964,599 6,864,206 2,438,591 3,124,089 20,391,485
Campbell Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 228,165 9.69% 144,074 10.51% 72,996 7.33% 0 0.00% 445,235 9.25% New Construction 0 0 0 0 0 Net Absorption 6,895 40,098 -1,217 0 45,776 Gross Absorption 72,349 40,098 2,047 0 114,494
3Q16 Total Available 225,833 9.62% 168,926 12.32% 32,178 3.23% 0 0.00% 426,937 8.88% New Construction 0 0 0 0 0 Net Absorption -28,915 -55,179 0 0 -84,094
Gross Absorption 34,448 0 0 0 34,448
2Q16 Total Available 224,709 9.61% 164,976 12.03% 8,037 0.81% 0 0.00% 397,722 8.29% New Construction 0 0 0 0 0
Net Absorption -14,390 -512 33,873 0 18,971 Gross Absorption 13,111 0 41,210 0 54,321
1Q16 Total Available 208,193 8.94% 142,454 10.39% 47,200 4.74% 0 0.00% 397,847 8.31% New Construction 0 0 0 0 0 Net Absorption 4,548 0 -9,706 0 -5,158 Gross Absorption 62,313 51,133 4,970 0 118,416
COLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
29COLLIERS INTERNATIONAL | FEBRUARY 2017
SILICON VALLEY MARKET STATISTICSCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
Cupertino Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 246,325 6.13% 16,842 0.59% 0 0.00% 0 0.00% 263,167 3.82% New Construction 0 0 0 0 0 Net Absorption -11,625 3,000 0 0 -8,625 Gross Absorption 16,439 3,000 0 0 19,439
3Q16 Total Available 218,249 5.43% 19,842 0.69% 0 0.00% 0 0.00% 238,091 3.46% New Construction 0 0 0 0 0 Net Absorption -30,228 0 0 0 -30,228 Gross Absorption 25,849 0 0 0 25,849
2Q16 Total Available 179,361 4.60% 19,842 0.69% 0 0.00% 0 0.00% 199,203 2.95% New Construction 0 0 0 0 0 Net Absorption -61,511 0 0 0 -61,511 Gross Absorption 29,758 0 0 0 29,758
1Q16 Total Available 87,523 2.26% 19,842 0.69% 0 0.00% 0 0.00% 107,365 1.59% New Construction 0 0 0 0 0 Net Absorption -11,598 -6,622 0 0 -18,220 Gross Absorption 110,427 0 0 0 110,427
Fremont Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 250,212 12.40% 2,733,029 13.57% 295,112 2.97% 172,920 2.05% 3,451,273 8.51% New Construction 9,660 0 0 0 9,660 Net Absorption -4,551 -222,094 -4,408 32,050 -199,003 Gross Absorption 32,480 318,818 67,199 68,400 486,897
3Q16 Total Available 259,629 12.93% 2,419,919 11.98% 290,837 2.96% 217,758 2.58% 3,188,143 7.88% New Construction 0 0 0 0 0 Net Absorption -8,096 -36,649 -66,393 269,270 158,132 Gross Absorption 12,548 518,433 84,414 289,070 904,465
2Q16 Total Available 217,484 10.83% 2,475,239 12.34% 244,147 2.50% 487,538 5.79% 3,424,408 8.51% New Construction 0 0 0 623,920 623,920 Net Absorption -1,471 34,388 51,162 313,140 397,219 Gross Absorption 24,338 567,305 120,886 354,540 1,067,069
1Q16 Total Available 233,810 11.64% 2,546,741 12.77% 190,344 1.95% 0 0.00% 2,970,895 7.52% New Construction 0 0 0 302,400 302,400 Net Absorption -14,004 -104,884 -102,584 302,400 80,928 Gross Absorption 95,718 412,635 176,185 331,200 1,015,738
30 COLLIERS INTERNATIONAL | FEBRUARY 2017
SILICON VALLEY MARKET STATISTICSCOLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
Gilroy Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 15,276 4.39% 20,931 5.63% 23,937 1.47% 0 0.00% 60,144 0.97% New Construction 0 0 0 0 0 Net Absorption 2,637 8,779 22,909 0 34,325 Gross Absorption 4,052 8,779 53,760 0 66,591
3Q16 Total Available 15,886 4.43% 29,710 7.98% 58,897 3.68% 0 0.00% 104,493 1.69% New Construction 0 0 0 0 0 Net Absorption 3,592 0 -7,350 162,830 159,072
Gross Absorption 7,132 0 6,400 162,830 176,362
2Q16 Total Available 22,687 6.39% 29,710 7.98% 44,746 2.81% 162,830 4.23% 259,973 4.22% New Construction 0 0 0 425,600 425,600
Net Absorption -2,021 -9,499 6,356 425,600 420,436 Gross Absorption 0 0 8,806 439,584 448,390
1Q16
Total Available 21,955 6.19% 29,710 7.98% 45,852 2.88% 176,814 4.57% 274,331 4.43%
New Construction 0 0 0 0 0 Net Absorption 2,961 -11,422 12,325 0 3,864 Gross Absorption 6,346 0 21,950 0 28,296
Los Altos Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 89,608 7.55% 0 0.00% 0 0.00% 0 0.00% 89,608 7.55% New Construction 0 0 0 0 0 Net Absorption 87,830 0 0 0 87,830 Gross Absorption 115,744 0 0 0 115,744
3Q16 Total Available 193,834 16.38% 0 0.00% 0 0.00% 0 0.00% 193,834 16.38% New Construction 18,300 0 0 0 18,300 Net Absorption 4,697 0 0 0 4,697
Gross Absorption 20,157 0 0 0 20,157
2Q16 Total Available 178,154 15.29% 0 0.00% 0 0.00% 0 0.00% 178,154 15.29% New Construction 0 0 0 0 0
Net Absorption -17,035 0 0 0 -17,035 Gross Absorption 30,201 0 0 0 30,201
1Q16
Total Available 165,684 14.26% 0 0.00% 0 0.00% 0 0.00% 165,684 14.26%
New Construction 0 0 0 0 0 Net Absorption -12,660 0 0 0 -12,660 Gross Absorption 20,056 0 0 0 20,056
31COLLIERS INTERNATIONAL | FEBRUARY 2017
SILICON VALLEY MARKET STATISTICSCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
Los Gatos Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 64,820 4.01% 1,400 0.42% 14,744 30.36% 0 0.00% 80,964 4.01% New Construction 0 0 0 0 0 Net Absorption -724 0 0 0 -724 Gross Absorption 24,941 0 0 0 24,941
3Q16 Total Available 75,168 4.65% 1,400 0.42% 14,744 30.36% 0 0.00% 91,312 4.52% New Construction 0 0 0 0 0 Net Absorption -12,049 4,822 -13,244 0 -20,471
Gross Absorption 21,484 4,822 0 0 26,306
2Q16 Total Available 77,488 4.79% 6,222 1.84% 14,744 30.36% 0 0.00% 98,454 4.87% New Construction 0 0 0 0 0
Net Absorption -3,244 0 -1,500 0 -4,744 Gross Absorption 8,103 0 0 0 8,103
1Q16
Total Available 46,125 2.86% 6,222 1.84% 0 0.00% 0 0.00% 52,347 2.61%
New Construction 0 0 0 0 0 Net Absorption -1,295 0 0 0 -1,295 Gross Absorption 24,702 0 0 0 24,702
Milpitas Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 161,822 13.51% 1,683,891 12.33% 11,096 0.39% 0 0.00% 1,856,809 8.28% New Construction 0 0 0 0 0 Net Absorption -16,482 -111,178 6,898 0 -120,762 Gross Absorption 7,957 88,838 8,770 0 105,565
3Q16 Total Available 111,464 9.30% 1,646,974 12.06% 19,866 0.68% 0 0.00% 1,778,304 7.90% New Construction 0 0 0 0 0 Net Absorption 46,718 129,954 5,960 100,103 282,735
Gross Absorption 58,309 228,290 14,473 100,103 401,175
2Q16 Total Available 159,471 13.29% 1,730,327 12.67% 23,954 0.82% 100,103 2.13% 2,013,855 8.95% New Construction 0 0 0 0 0
Net Absorption -27,962 172,731 60,827 223,052 428,648 Gross Absorption 7,717 333,251 74,287 223,052 638,307
1Q16
Total Available 163,481 13.62% 1,679,780 12.30% 111,460 3.79% 348,155 7.40% 2,302,876 10.23%
New Construction 0 0 0 0 0 Net Absorption -13,363 -466,224 13,664 -100,103 -566,026 Gross Absorption 28,894 93,113 49,560 0 171,567
32 COLLIERS INTERNATIONAL | FEBRUARY 2017
SILICON VALLEY MARKET STATISTICSCOLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
Morgan Hill Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 39,280 5.24% 103,052 3.58% 182,019 7.69% 0 0.00% 324,351 5.01% New Construction 0 0 0 0 0 Net Absorption 25,000 0 12,278 0 37,278 Gross Absorption 27,308 52,225 25,000 0 104,533
3Q16 Total Available 66,588 11.14% 150,037 5.22% 209,071 8.84% 0 0.00% 425,696 6.74% New Construction 0 0 0 0 0 Net Absorption 88 5,018 -25,000 0 -19,894
Gross Absorption 3,023 5,018 12,800 0 20,841
2Q16 Total Available 64,368 10.88% 102,830 3.58% 143,317 6.06% 0 0.00% 310,515 4.92% New Construction 0 0 0 0 0
Net Absorption -30,761 5,982 -3,192 0 -27,971 Gross Absorption 1,834 11,000 3,300 0 16,134
1Q16
Total Available 60,819 10.02% 100,147 3.51% 121,435 5.13% 0 0.00% 282,401 4.48%
New Construction 0 0 0 0 0 Net Absorption 7,237 9,192 14,850 0 31,279 Gross Absorption 10,138 27,908 22,595 45,033 105,674
Mountain View Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 365,378 6.38% 521,519 3.75% 55,301 3.23% 0 0.00% 942,198 4.41% New Construction 185,400 0 0 0 185,400 Net Absorption 195,852 -18,402 4,134 0 181,584 Gross Absorption 285,452 84,882 18,000 0 388,334
3Q16 Total Available 395,514 7.14% 421,913 3.03% 58,161 3.43% 0 0.00% 875,588 4.14% New Construction 0 0 0 0 0 Net Absorption 20,865 36,499 -28,814 0 28,550
Gross Absorption 88,973 97,205 8,656 0 194,834
2Q16 Total Available 432,857 7.82% 465,577 3.26% 55,220 3.25% 0 0.00% 953,654 4.43% New Construction 151,998 0 0 0 151,998
Net Absorption -24,745 -11,459 12,226 0 -23,978 Gross Absorption 172,762 130,416 30,208 0 333,386
1Q16
Total Available 343,150 6.41% 446,534 3.26% 56,950 3.37% 0 0.00% 846,634 4.08%
New Construction 0 0 0 0 0 Net Absorption -31,907 -34,415 -13,450 0 -79,772 Gross Absorption 111,765 69,315 9,260 0 190,340
33COLLIERS INTERNATIONAL | FEBRUARY 2017
SILICON VALLEY MARKET STATISTICSCOLLIERS INTERNATIONAL
2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
Palo Alto Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 718,106 6.95% 237,732 1.74% 154,139 13.41% 0 0.00% 1,109,977 4.36% New Construction 109,218 0 0 0 109,218 Net Absorption 97,569 -13,343 -16,700 0 67,526 Gross Absorption 245,307 18,944 3,500 0 267,751
3Q16 Total Available 522,518 5.12% 210,329 1.54% 128,310 11.17% 0 0.00% 861,157 3.40% New Construction 0 0 0 0 0 Net Absorption -39,681 750 -35,023 0 -73,954
Gross Absorption 374,405 241,120 7,680 0 623,205
2Q16 Total Available 537,132 5.27% 104,256 0.76% 153,050 13.30% 0 0.00% 794,438 3.14% New Construction 10,235 43,468 0 0 53,703
Net Absorption 19,712 24,427 -3,200 0 40,939 Gross Absorption 144,098 179,711 5,500 0 329,309
1Q16
Total Available 435,776 4.29% 167,584 1.24% 129,170 11.22% 0 0.00% 732,530 2.91%
New Construction 22,334 0 0 0 22,334 Net Absorption 31,176 0 5,000 0 36,176 Gross Absorption 176,348 14,909 5,000 0 196,257
San Jose Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 3,550,642 12.77% 6,837,889 16.14% 727,412 3.05% 796,827 4.74% 11,912,770 10.75% New Construction 234,622 0 0 0 234,622 Net Absorption -883 -141,528 -102,236 -15,000 -259,647 Gross Absorption 619,520 554,985 189,543 208,873 1,572,921
3Q16 Total Available 3,555,738 12.79% 6,741,977 15.90% 855,047 3.59% 596,427 3.48% 11,749,189 10.57% New Construction 185,000 150,000 0 0 335,000 Net Absorption 62,098 -338,986 32,217 -101,934 -346,605
Gross Absorption 563,411 436,498 194,796 89,182 1,283,887
2Q16 Total Available 3,229,120 11.75% 6,005,015 14.21% 486,467 2.06% 449,727 2.62% 10,170,329 9.20% New Construction 384,351 0 0 0 384,351
Net Absorption 312,092 -146,368 -68,411 283,897 381,210 Gross Absorption 653,514 278,500 205,085 482,669 1,619,768
1Q16
Total Available 3,050,882 11.30% 5,926,016 14.03% 458,756 1.96% 903,569 5.30% 10,339,223 9.42%
New Construction 0 0 0 0 0 Net Absorption 46,649 129,801 1,397 125,738 303,585 Gross Absorption 667,153 727,512 361,045 194,257 1,949,967
34 COLLIERS INTERNATIONAL | FEBRUARY 2017
SILICON VALLEY MARKET STATISTICSCOLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
Santa Clara Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 2,449,566 19.36% 2,202,890 11.46% 145,955 1.26% 141,154 4.03% 4,939,565 10.53% New Construction 246,765 0 0 0 246,765 Net Absorption 128,326 -79,631 -33,494 0 15,201 Gross Absorption 371,049 38,649 50,712 0 460,410
3Q16 Total Available 1,793,556 14.14% 1,983,243 10.22% 129,046 1.12% 152,364 4.54% 4,058,209 8.63% New Construction 0 0 0 0 0 Net Absorption 53,298 -39,428 -9,782 0 4,088 Gross Absorption 189,124 91,899 54,076 46,000 381,099
2Q16 Total Available 1,897,991 15.27% 1,901,811 9.78% 113,685 0.99% 87,210 2.60% 4,000,697 8.56% New Construction 0 0 0 0 0 Net Absorption -117,344 106,275 53,834 -33,210 9,555 Gross Absorption 132,584 273,586 118,345 71,296 595,811
1Q16 Total Available 1,707,165 13.74% 2,195,034 11.22% 168,810 1.47% 162,367 4.84% 4,233,376 9.04% New Construction 311,208 0 0 0 311,208 Net Absorption -37,259 -472,018 -47,460 18,000 -538,737 Gross Absorption 138,870 201,988 133,738 18,000 492,596
Sunnyvale Office % Available R&D % Available Industrial % Available Warehouse % Available Total % Available
4Q16 Total Available 563,272 4.48% 1,440,540 6.30% 65,260 1.07% 56,773 3.17% 2,125,845 4.91% New Construction 0 0 0 0 0 Net Absorption 28,944 -85,832 -890 -415 -58,193 Gross Absorption 63,886 169,576 20,317 0 253,779
3Q16 Total Available 414,151 3.29% 1,391,391 6.01% 84,939 1.40% 56,358 3.14% 1,946,839 4.47% New Construction 52,394 0 0 0 52,394 Net Absorption 523,095 -140,257 34,884 0 417,722 Gross Absorption 969,074 117,384 34,884 0 1,121,342
2Q16 Total Available 1,066,460 8.51% 1,438,724 6.22% 119,823 1.97% 56,773 3.17% 2,681,780 6.16% New Construction 597,848 0 0 0 597,848 Net Absorption 5,507 -32,070 747 0 -25,816 Gross Absorption 35,416 184,430 5,199 0 225,045
1Q16 Total Available 406,336 3.25% 1,173,187 5.11% 102,769 1.68% 56,773 3.17% 1,739,065 4.01% New Construction 630,544 0 0 0 630,544 Net Absorption 638,442 -6,973 68,950 0 700,419 Gross Absorption 969,909 188,031 184,435 0 1,342,375
35COLLIERS INTERNATIONAL | FEBRUARY 2017
36 COLLIERS INTERNATIONAL | FEBRUARY 2017
37COLLIERS INTERNATIONAL | FEBRUARY 2017
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Other MembershipsMountain View Chamber of Commerce
San Carlos Chamber of CommerceRedwood City Chamber of Commerce
German American BUSiness AssociationGerman American Chamber of Commerce
Gilroy Chamber of CommerceMorgan Hill Chamber of Commerce
Silicon Valley Capital ClubAsia America MultiTechnology Association (AAMA)
Rotary InternationalKiwanis International
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Individual Memberships
38 COLLIERS INTERNATIONAL | FEBRUARY 2017
BROKERAGE PROFILESCOLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
SAN JOSE James R. Abarta +1 925 227 6228 [email protected]
Matt Arya +1 408 282 3835 [email protected]
Terry Bell, sior +1 408 282 3923 [email protected]
Howard Berry +1 408 282 3809 [email protected]
David Buchholz +1 408 282 3843 [email protected]
Samuel E. Burnett +1 408 978 1916 [email protected]
Dion Campisi, sior +1 408 282 3875 [email protected]
Jim Castignani +1 408 282 3893 [email protected]
Duffy D’Angelo, sior +1 408 282 3950 [email protected]
Scott Daugherty +1 408 282 3830 [email protected]
Tom de Jong +1 408 282 3829 [email protected]
Brent Dressen +1 408 282 3979 [email protected]
Joe Elliott, sior +1 408 282 3922 [email protected]
David N. Evans +1 408 282 3825 [email protected]
Greg Evans +1 408 282 3839 [email protected]
Craig L. Fordyce, sior, ccim +1 408 282 3911 [email protected]
Jack Fordyce, sior, ccim +1 408 282 3905 [email protected]
Frank Friedrich +1 408 282 3813 [email protected]
Greg Galasso, sior +1 408 282 3816 [email protected]
Paige Gammon +1 408 282 3918 [email protected]
Stephen J. Gibson, sior +1 408 282 3890 [email protected]
Mark Giovanzana +1 408 282 3861 [email protected]
Nick Goddard +1 408 282 3858 [email protected]
Susan Gregory +1 408 282 3940 [email protected]
Joan S. Haynes +1 408 282 3920 [email protected]
Terry Healy +1 408 282 3826 [email protected]
H. L. (Bing) Heckman +1 408 282 3805 [email protected]
Jere Hench +1 408 282 3832 [email protected]
Edward M. Hofer, sior +1 408 282 3819 [email protected]
Bruce Horton +1 408 282 3831 [email protected]
Steve Hunt +1 408 282 3846 [email protected]
Michael R. Johnson, sior +1 408 282 3852 [email protected]
Clay Jubran +1 408 282 3883 [email protected]
David Katz +1 408 282 3834 [email protected]
Eric Katz +1 408 282 3833 [email protected]
John Kovaleski +1 408 282 3844 [email protected]
Mark R. Kuiper +1 408 282 3850 [email protected]
Carla Lindorff, mba +1 408 282 3908 [email protected]
John Machado, jd, mba +1 408 282 3862 [email protected]
Kristen Macken, sior +1 408 282 3878 [email protected]
Brian Mason +1 408 282 3959 [email protected]
John McMahon +1 408 282 3944 [email protected]
Jim McPhee +1 408 282 3993 [email protected]
David C. Mein +1 408 282 3828 [email protected]
Marne Michaels +1 408 282 3838 [email protected]
Mike Miller +1 408 282 3842 [email protected]
Shane Minnis, leed, ap +1 408 282 3901 [email protected]
Martin A. Morici, sior +1 408 282 3921 [email protected]
Joe Morici +1 408 282 3924 [email protected]
Kevin Moul +1 408 282 3873 [email protected]
Tom Nelson +1 408 282 3960 [email protected]
Jeffry S. Nochimson, sior +1 408 282 3941 [email protected]
Dharmesh Patel +1 408 282 3990 [email protected]
M. Steven Prehm +1 408 282 3936 [email protected]
George Quinn +1 408 282 3912 [email protected]
Justin Reilly +1 408 282 3929 [email protected]
Donald H. Reimann, sior +1 408 282 3888 [email protected]
Jeffrey L. Rogers +1 408 282 3919 [email protected]
Michael L. Rosendin, sior, ccim +1 408 282 3900 [email protected]
Ryan Rosendin +1 408 282 3902 [email protected]
Cynthia Rotwein +1 408 282 3856 [email protected]
Robert Rowland +1 408 282 3880 [email protected]
David R. Sandlin, sior +1 408 282 3988 [email protected]
David V. Schmidt, sior +1 408 282 3814 [email protected]
John Serex +1 408 282 3803 [email protected]
Bob Shepherd +1 408 282 3855 [email protected]
Ryan Slater +1 408 282 3812 [email protected]
Hitoshi Takahashi +1 408 282 3933 [email protected]
Sean Toomey +1 408 282 3864 [email protected]
Kenneth D. Tsukahara +1 408 282 3934 [email protected]
Chris TwardUS +1 408 282 3836 [email protected]
Gregg von Thaden +1 408 282 3915 [email protected]
James Yoder +1 408 282 3863 [email protected]
André R. Walewski +1 408 282 3837 [email protected]
Joel C. Yungen +1 408 282 3854 [email protected]
Blake Zamudio +1 408 282 3906 [email protected]
Mark P. Zamudio, ccim +1 408 282 3822 [email protected]
Steve Zamudio, ccim +1 408 282 3824 [email protected]
GILROY Jeffrey A. Barnes +1 408 842 7000 [email protected]
Mark Sanchez +1 408 842 7000 [email protected]
Matt van Keulen +1 408 842 7000 [email protected]
MOUNTAIN VIEW Diane Armstrong +1 408 282 3848 [email protected]
Mike Cobb +1 650 486 2251 [email protected]
John Colyar +1 408 282 3949 [email protected]
Paul McManUS +1 408 282 3963 [email protected]
Kyle Portal +1 408 383 3954 [email protected]
Brett Taylor +1 408 282 3889 [email protected]
Romy Zeid +1 408 282 3818 [email protected]
REDWOOD CITY Philip Arnautou, Jr., CPA +1 650 486 2213 [email protected]
JP CUStodio +1 650 486 2218 [email protected]
Mike Davis +1 650 486 2219 [email protected]
Steve Divney +1 650 638 4331 [email protected]
Michael Draeger +1 650 486 2221 [email protected]
Teddy Enfantino +1 650 486 2209 [email protected]
Stephanie Elkins +1 650 486 2272 [email protected]
David Gray, ifma, r.e.c. +1 650 486 2262 [email protected]
Mark Hart +1 650 486 2217 [email protected]
Douglas Marks, mba +1 650 486 2222 [email protected]
John McLellan +1 650 486 2223 [email protected]
Gary Nichols +1 650 486 2250 [email protected]
Tom Schmidt, ccim +1 650 486 2226 [email protected]
Robert Schwartz +1 650 486 2286 [email protected]
Don Sung +1 650 486 2228 [email protected]
Anthony Tuso +1 650 486 2288 [email protected]
Craig Walsh +1 650 486 2230 [email protected]
Cory Waxman +1 650 486 2207 [email protected]
Brett Weber +1 650 486 2233 [email protected]
Luke Wilson +1 650 486 2212 [email protected]
Ryan Young +1 650 486 2229 [email protected]
Grant Zamudio +1 650 486 2231 [email protected]
Executive Managing Director San Jose/Silicon Valley Jeff S. Fredericks, sior +1 408 282 3801 [email protected]
Executive Managing Director Peninsula Rick Knauf +1 650 486 2244 [email protected]
39COLLIERS INTERNATIONAL | FEBRUARY 2017
40 COLLIERS INTERNATIONAL | FEBRUARY 2017
General TermsAvailability: Vacant or occupied space that is offered for lease, sublease or sale (to an owner-occupant).
Build-to-Suit: A developable parcel that an owner will improve to suit the needs of a particular tenant. Construction does not begin until a tenant has committed to the property.
Building Base: Total square footage developed. Colliers tracks office buildings from 3,000 square feet, R&D from 5,000 square feet, industrial buildings from 7,500 square feet, and warehouse buildings from 10,000 square feet.
CBD: Central Business District, generally the downtown area of a major city.
Completed Construction: Construction which is completed during the period.
Direct Space: Space available through a landlord/owner.
Effective Net Absorption: Effective net absorption is a Colliers measurement of the net change in available space during a given period of time after adjustments for space taken off the market. Effective net absorption utilizes the same formula to measure change of occupancy as net absorption except that it treats any newly available space, whether available direct or for sublease, as if it is coming onto the market vacant.
Gross Absorption: The total square footage sold (to owner/occupants) or leased during a given time period.
Net Absorption: The net change in occupied space during a given period of time.
PSF: Per square foot.
PSF/MO: Per square foot per month.
SF: Square foot or square feet.
Silicon Valley: Colliers International defines Silicon Valley as all of Santa Clara County plus Fremont, for the purposes of its market reports.
Speculative Construction: Construction that will commence without any prior commitment from a tenant.
Sublease Space: Space available through a sublessor to a third party.
T.I.s: Tenant Improvements are a dollar amount offered by the lessor generally for the construction or modification of the premises.
Total Available: The sum of available direct and available sublease space.
Vacancy: Percentage of vacant inventory available including both vacant direct, and vacant sublease space.
Product ClassificationClass “A” Office: Modern, steel-framed low, mid or high-rise structures used exclusively for office tenants.
Class “B” Office: Wood and steel mix framed low to mid-rise structures and older brick or concrete structures used predominately for office.
Industrial/Light Industrial: Buildings with drive-in and/or dock-high truck capabilities, clear heights of less than 20 feet and parking ratios of 2.0/1,000 or less.
Research and Development (R&D): One to three story structures with extensive glass, heavy office buildout and 3.5/1,000 parking ratio. Buildings may include high-end production facilities, laboratory space and grade level truck doors.
Warehouse/Distribution: Buildings with a minimum 20-foot clear height, dock-high truck loading and parking ratios of 2.0/1,000 or less.
Rental TermsCAM: Common area maintenance charge. Generally used in Industrial Gross and NNN leases where the tenant pays a share of the costs associated with the maintenance of the common areas.
Full Service: Rental type generally used in office product where the landlord’s rental rate contains all costs associated with occupying the premises inclusive of taxes, insurance, maintenance, janitorial, and utilities.
Industrial Gross: Rental type generally used in industrial product where the landlord’s rental rate contains all costs associated with occupying the premises inclusive of taxes, insurance, and maintenance.
Rental Rates: All rental rates for office space are calculated on a Full Service basis unless otherwise noted. All rental rates for R&D, industrial and warehouse space are calculated on a NNN basis unless otherwise noted.
Triple Net (NNN): Rental type where the tenant pays rent to the landlord and additionally assumes all costs regarding the operation, taxes and maintenance of the premises and building.
UNDERSTANDING ABSORPTION
Colliers uses several measurements to track market conditions and deal flow. While related, the formulas to arrive at these measurements differ. using the results from 2016, here is how Colliers measures change in availability and net absorption.
Change in Availability: This measurement is simply the difference between the amounts of space available at the end of one period to the next. The table below shows that total available space increased by 4.86 million square feet in 2016. Note that “change in availability” includes adjustments for space that is taken off the market. Space taken off the market is not a factor in net absorption measurements.
Total Available End of 2015 27,627,855Plus: Vacant & Occupied Space that came available in 2016 16,204,617 Plus: New Shell added in 2016 4,695,265 2014 Available + Newly Available in 2016 48,527,737 Less: 2016 Gross Absorption 20,391,485 Less: 2016 Adjustments/Taken off the Market 4,359,212 Total Available end of 2016 32,495,464
Net Absorption: Net absorption measures the change in occupied space from one period to the next. In this measurement, it is important to distinguish that a building may be “available”, but not vacant (often the case in a sublease situation, for example). Therefore, occupancy is not reduced (negative net absorption) until space is vacated, and sometimes that does not happen until the space is leased, creating a net absorption “wash” for the deal and for that particular period. Vacant space that came available 2016 3,510,319 Previously available space vacated in 2016 15,205,991 2016 Total Vacant space added 18,176,310 2016 Gross Absorption 20,391,485 2016 Net Absorption (Change in Occupancy) 1,675,175
GENERAL TERMSCOLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
41COLLIERS INTERNATIONAL | FEBRUARY 2017
42 COLLIERS INTERNATIONAL | FEBRUARY 2017
43COLLIERS INTERNATIONAL | FEBRUARY 2017
COLLIERS BAY AREA LOCATIONSCOLLIERS INTERNATIONAL2016 - 2017 SILICON VALLEY | MARKET REPORT & FORECAST
MANTECA
STOCKTON
SALIDA
CERES
99
99
99
33
88
23
132
120120
108
219TRACY
LIVERMORE
PLEASANTON
FREMONT
NEWARK
UNION CITY
HAYWARD
PALOALTO
MTN.VIEW
REDWOODCITY
SANMATEO FOSTER CITY
DUBLIN
SAN RAMON
DANVILLE
WALNUTCREEK
CONCORDMARTINEZ
RICHMOND
BERKELEY
OAKLAND
SAN LEANDRO
PITTSBURG ANTIOCH
BRENTWOOD
SANJOSE
MILPITAS
SUNNYVALESANTACLARA
GILROYSANTA CRUZ
MORGAN HILL
LOS GATOS
FAIRFIELD
SANTAROSA
NAPA
VALLEJO
BENICIA
AMERICANCANYON
VACAVILLE
SACRAMENTO
980
580
680
280
680
680
680
780
580
580
580
580
205
880
80
80
80
280
280
4
4
4
12
12
12
29
29
29
4
92
84
84
84
17
85
237
87
1
1
24
13
121
110
121
101
101
101
101
CAMPBELL
101
5
5
1
1
1
37
5
505
SANFRANCISCO
SAN JOSE/SILICON VALLEY450 West Santa Clara StreetSan Jose, CA 95113+1 408 282 3800
GILROY/SOUTH COUNTY8070 Santa Teresa BoulevardSuite 220Gilroy, CA 95020+1 408 842 7000
MOUNTAIN VIEW 2570 West El Camino Real Suite 222 Mountain View, CA 94040 +1 408 282 3800
SAN FRANCISCO PENINSULA203 Redwood Shores ParkwaySuite 125Redwood City, CA 94065+1 650 486 2200
SAN FRANCISCO 50 California StreetSuite 1900San Francisco, CA 94111+1 415 788 3100
OAKLAND/EAST BAY1999 Harrison StreetSuite 1750Oakland, CA 94612+1 510 986 6770
PLEASANTON/EAST BAY3825 Hopyard RoadSuite 195Pleasanton, CA 94588+1 925 463 2300
FAIRFIELD/NORTH BAY360 Campus Lane, Suite 101Fairfield, CA 94534+1 707 863 0188
WALNUT CREEK/EAST BAY1850 Mt. Diablo BoulevardSuite 200Walnut Creek, CA 94596+1 925 279 0120
STOCKTON/CENTRAL VALLEY3439 Brookside RoadSuite 108 Stockton, CA 95219+1 209 475 5100
Colliers International is a global leader in real estate services with more than 16,000 professionals operating out of 554 offices in 66 countries. Colliers provides a full range of services to real estate users, owners and investors worldwide including: global corporate solutions; sales and lease brokerage; property and asset management; project management; hotel investment sales and consulting; property valuation and appraisal services; mortgage banking and insightful research. Colliers has 10 offices in Northern California and Nevada. CA License No. 00490878
R E G I O N A L O F F I C E S
San Jose/Silicon Valley450 West Santa Clara StreetSan Jose, CA 95113+1 408 282 3800
Gilroy/South County8070 Santa Teresa Boulevard, Suite 220Gilroy, CA 95020+1 408 842 7000
Mountain View2570 West El Camino Real, Suite 222 Mountain View, CA 94040 +1 408 282 3800
Redwood City/Peninsula203 Redwood Shores Parkway, Suite 125Redwood City, CA 94065+1 650 486 2200
San Francisco50 California Street, Suite 1900San Francisco, CA 94111+1 415 788 3100
Oakland/East Bay1999 Harrison Street, Suite 1750Oakland, CA 94612+1 510 986 6770
Pleasanton/East Bay3825 Hopyard Road, Suite 195Pleasanton, CA 94588+1 925 463 2300
Fairfield/North Bay360 Campus Lane, Suite 101Fairfield, CA 94534+1 707 863 0188
Walnut Creek/East Bay1850 Mt. Diablo Boulevard, Suite 200Walnut Creek, CA 94596+1 925 279 0120
Stockton/Central Valley3439 Brookside Road, Suite 108 Stockton, CA 95219+1 209 475 5100
Sacramento301 University Avenue, Suite 100 Sacramento, CA 95825+1 916 929 5999
Colliers International is a global leader in real estate services with more than 16,300 professionals operating out of 502 offices in 67 countries. Colliers provides a full range of services to real estate users, owners and investors worldwide including: global corporate solutions; sales and lease brokerage; property and asset management; project management; hotel investment sales and consulting; property valuation and appraisal services; mortgage banking and insightful research. Colliers has 10 offices in Northern California and Nevada. CA License No. 00490878