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Silicon Valley office sales decrease in Q1 2017

by Andrea Waitrovich

Office property sales in the Silicon Valley have dipped from $1.43 billion in the fourth quarter of 2016, to $951.1 million through March of 2017 — a 33.6 percent decline, according to Savills Studley.

Since hitting a peak of 11.6 million square feet in midyear 2015, four-quarter trailing leasing has steadily declined, and has now fallen below 6 million square feet.

The region’s overall availability rate rose for the second straight quarter, jumping by 40 basis points to 15.7 percent. The class A availability rate increased by 90 basis points to 19.6 percent, and has spiked by 390 basis points from a year ago.

Regional overall asking rent, rose by 3.8 percent to $3.87 during the first quarter, and has increased by 6.2 percent year-on-year. Class A rent posted a sharper 4.5 percent quarter-on-quarter increase to $4.12 and has spiked by 14.9 percent from first quarter 2016.

Larger tenants looking for space in the Valley remain focused on facilities along the CalTrain corridor, but are challenged by single-digit vacancy in Sunnyvale, Palo Alto and Mountain View. Milpitas is more of an industrial/R&D market, and lacks the transportation options and proximity to talent that cities along the CalTrain line possess. It is not just proximity to train stations that is driving tenants to these cities — proximity to other tech firms, whether they be competitors or clients, is often just as important.

In turn, competition for space is still very brisk in areas such as Sunnyvale, Menlo Park and Mountain View. Amazon, for example, leased a 350,000-square-foot building (1111 Lockheed Martin Way) in Sunnyvale. The property in the Moffett Towers II project is scheduled for completion later this year. Although Sunnyvale/Cupertino has nearly 800,000 square feet of available space for lease, its vacancy rate is well under 5 percent. In contrast, the sections of the Valley to the south — Santa Clara and San Jose — account for nearly two-thirds of the available space for lease in the Valley and only about half of the product under construction in these areas is pre-leased.

Meanwhile, fully leased assets in Sunnyvale are commanding prices seen in gateway cities such as San Francisco. New York City–based Tristar Capital paid $290.7 million ($831 per square foot) for 410–430 North Mary Ave. The seller was Rockwood Capital. The 350,000-square-foot, three-building complex is fully leased to Apple through October 2022. Rockwood paid $122.4 million for the property in 2010, and spent $5.25 million on improvements for Apple, as well as new roofs on two of the three buildings.

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