Silicon Valley office market adjusts to post-coronavirus economy

SAN JOSE — Big tech companies that filled up large office
buildings have helped to stabilize the Silicon Valley office market
despite the coronavirus, but ongoing economic upheaval has caused
sublease space to swell, a new report shows.

Preleases of a number of Silicon Valley office buildings by tech
companies ensured that the sites were full when their construction
was completed, according to a report for the third quarter from
Colliers International, a commercial real estate firm.

Because the offices were completely leased even before
construction began, that dynamic kept the buildings from being
listed as empty and contributing to the vacancy rate in Silicon
Valley, Colliers International states in a report covering the
July-through-September quarter.

“Silicon Valley’s commercial property markets are continuing
to adapt to a post-COVID-19 economy,” stated a report prepared by
Lena Tutko, a senior research manager with Colliers
International’s San Jose office.

Palo Alto, one of Silicon Valley’s major tech hubs, was the
primary focus of major office leasing deals during the third
quarter in the region, according to Colliers.

The largest office lease of the third quarter was a Guardant
Health rental deal for 255,000 square feet in an office building at
3000 Hanover St. in Palo Alto.

Other major leasing deals for office space during the
three-month period: Kodiak Sciences rented 155,500 square feet in
two buildings at 1200 Page Mill Road and 1250 Page Mill Road in
Palo Alto, while Trip Action rented a building totaling 99,700
square feet at 1501 Page Mill Road in Palo Alto.

Seven office properties came online in the third quarter and
together added 983,300 square feet to Silicon Valley’s office
inventory. Of that total, 81.4% of the square footage was
pre-leased at the time the buildings were completed and made
available to the tenants.

Among the tenants that pre-leased big office buildings prior to
completion:

— Roku took two buildings in north San Jose at 1167 Coleman
Ave. and 1173 Coleman Ave. that together total 358,400 square
feet.

— Google pre-rented a new office building totaling 190,000
square feet at 600 Clyde Ave.

— JP Morgan’s tech unit, 119,000 square feet at 3223 Hanover
St.

— VMWare, 85,400 square feet at 3380 Coyote Hill Road in Palo
Alto.

— WilmerHale, 65,600 square feet at 2600 El Camino Real in
Palo Alto.

Still, plenty of ailments afflict the Silicon Valley office
market amid coronavirus-linked business shutdowns and re-thinking
of office space needs on the part of tech companies that employ
numerous workers who are operating from home.

“The sublease market continued to expand,” Colliers
reported.

An estimated 8.6 million square feet of sublease office space is
on the market in Silicon Valley. Sublease spaces account for 24.1%
of all of the vacant office space in the South Bay, according to
Colliers.

Overall office vacancies have risen while rents have drooped in
Silicon Valley. Colliers defines Silicon Valley as Santa Clara
County and Fremont.

The vacancy rate for Silicon Valley office buildings was 11.6%�
in the third quarter ending in September, worse than the 10.9%
office vacancy level for the second quarter that ended in June,
Colliers reported.

Office rents averaged $5.09 a square foot on a monthly basis
during the third quarter in Silicon Valley, lower than the
second-quarter office rent of $5.24 a square foot.

Despite the uncertainties, developers continue to construct new
office buildings in Silicon Valley.

“At the end of the third quarter of 2020, Colliers was
tracking 10.8 million square feet of office product under
construction,†the commercial real estate firm reported.

Source: FS – All – Real Estate News 1
Silicon Valley office market adjusts to post-coronavirus
economy