2,042,432 s.f.

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