of purposes, including office and R&D, he explained. Another type of commercial space with shrinking vacancy rates in affluent Santa Clara County last year was retail. James Chung, executive managing director in the San Jose office of DTZ Retail—Terranomics, said the rate was 4.7 percent at year’s end, down from 5 percent on Sept. 30 and 5.9 percent at the end of 2013. In San Mateo County, it was even smaller, with a diminutive 2.3 percent vacancy rate on Dec. 31, down from 2.6 percent on Sept. 30. “These are historically low rates,” Chung said. “And the reason is, well, all you have to THE ENTIRE AREA IS FIRING ON ALL CYLINDERS. do is look around. The economy is booming. We see increasing levels of residential growth and density. Silicon Valley is the center of the universe for job growth, and that is fundamental to the health of retail.” CONSTRUCTION SLOWLY BUILDING Sectors that did especially well last year included both vertical and horizontal mixed-use developments, as well as foodrelated businesses in such upscale neighborhood commercial districts as Lincoln Avenue in San Jose’s Willow Glen district and University Avenue in Palo Alto. Another staple June/July 2015 51 SHUTTERSTOCK “We have attained this level of success by growing into it gradually,” he said. “We were the first part of the country out of the recession, and now we are seeing recordbreaking numbers for venture capital and angel investment and jobs.” Hancock said the phenomenal success of established Silicon Valley giants like Google, Facebook and Apple—which earlier this year became the first American company ever to surpass the $700 billion mark in market value—is one aspect of the region’s economic vigor. “The other driver is 46,000 new companies and small companies in this area,” he said. “And those are the only ones we know about because they have taken out papers. What is impressive about these companies today is that they encompass social media, mobile devices and apps, as well as Internet-based commerce, biotech, nanotechnology and clean tech. And technology is infusing other industrial segments in the area, like health care, retail and construction.” GIVE US SPACE Last year was certainly an active one when it came to building commercial space in Silicon Valley— 1.1 million square feet of office, warehouse, industrial and R&D was completed. And demand was so strong, vacant space shrunk by 4.6 million square feet in Santa Clara County alone. It dwindled from 32 million square feet in the third quarter of 2013 to 27.4 million square feet by the third quarter of last year. Office space vacancy rates last year were 10 percent in Santa Clara County and 11 percent in San Mateo County. “We are definitely seeing things go in the right direction, with very good leasing velocity last year,” said Jim Beeger, senior vice president in the San Jose office of Colliers International. “Most of us didn’t think we would ever see things as they were back in 2000 again, but we did. And it’s solid growth this time, not unrealistic as it was in 2000.” And there is much more coming. According to the index, nearly 13 million square feet of commercial space was approved for construction by local governments during fiscal 2013-14. That amounts to nearly twice the size of the largest office building in the U.S., the Pentagon in Virginia. Among the current inventory of space, Beeger said asking lease rates in the hottest districts, which included land along the Caltrain commute corridor or along such freeways as Highways 101 and 237 or Interstate 880, shot up 15 to 20 percent last year. Asking triple net monthly lease rates were $5.50 to $6 per square foot in such popular locations as downtown Mountain View. According to the index, average asking lease rates for office space in the region continued their upward trajectory. In Santa Clara County during the first three quarters of 2014, the average rate was $3.30 per square foot monthly and in San Mateo County, $3.68 per square foot monthly. Beeger said in 2014, new commercial space in Santa Clara and San Mateo counties was increasingly categorized as office, which locally is considered any development with at least three stories. Tech companies in particular are building such space that can be used for a combination (continued on pg. 96)
South Bay Accent - Jun/Jul 2015
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