North San Jose, Santa Clara office markets are cooling down
SAN JOSE — Silicon Valley’s hottest office markets remain robust, but leasing activity is cooling down in some markets such as north San Jose and Santa Clara, according to a new report.
Some of the most attractive markets of northern Santa Clara County and southern San Mateo County — Menlo Park, Mountain View, Palo Alto and Sunnyvale chief among them — are still seeing plenty of leasing activity, according to Savills Studley, a commercial realty brokerage. However, some outlying markets — where developers have constructed a number of office buildings and are planning more — are seeing softer activity.
“Mountain View, Menlo Park and Sunnyvale have negligible space remaining for lease,” Savills Studley stated in its market report. “In contrast, landlords with space available in Santa Clara and North San Jose are seeing much slower demand.”
One of the notable deals of the first quarter occurred in Sunnyvale, where Amazon rented a 350,000-square-foot building at 1111 Lockheed Martin Way.
“A bit of a playground mentality seems to still prevail,” the Savills Studley report stated. “Most companies want to be where the cool kids are.”
Much of the lure of these markets arises from their proximity to transit.
“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,” the report stated.
Other markets have considerable vacancies compared with the hot regions, and construction plans could exacerbate the vacancies.
“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,” the report stated.
The office vacancy rate for Class A, or top-quality, office space is 9.9 percent in Sunnyvale/Cupertino, 15.7 percent in Mountain View/Los Altos, 24.6 percent in Santa Clara and 35.5 percent in north San Jose.
A year ago, the office vacancies for Class A space were 11.9 percent in Sunnyvale, 13.1 percent in Mountain View, 9.7 percent in Santa Clara and 26.5 percent in north San Jose.
“There clearly has been a slowdown in the office market,” said Phil Mahoney, vice chairman of the Newmark Cornish & Carey commercial realty brokerage office in Santa Clara.
It’s the tech titans that have driven much of the activity lately, experts said.
“Some of the major players, such as a Google, or Apple, or Amazon, are still very active,” Mahoney said. “But we are seeing smaller and mid-sized companies deciding to maintain a presence here, but expanding in other markets as fast, or faster, rather than expanding in Silicon Valley.”
The shift appears to be driven by a quest for talent, Mahoney said.
“It’s just hard for these smaller companies to compete with the big boys like Apple, Google and Facebook,” Mahoney said. “It’s a bit of a troubling trend. And it’s a trend that seems to be manifested in less robust demand for office space than we saw in recent years.”