OUTLOOK ECONOMIC OVERVIEW

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suggests the current average is heavily weighted by outdated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