Leasing volume has been stuck in neutral for several quarters. Nevertheless, activity in the Midtown, Central Perimeter, North Fulton and Northwest remains steady with corporate relocations boosting demand as well.
Colliers International: U.S. Flexible Workspace Outlook ReportDarren Shaw, SIOR
The latest U.S. edition of the Flexible Workspace Outlook Report is now available. The report, part of a series to be updated subsequently with data from Canada and Latin America, will be integrated with the APAC and forthcoming EMEA editions as well. This report highlights the current state and future trends of the flexible workspace market, how it is impacting both occupiers and investors, and where opportunity exists for our clients.
Demand for new technology space is not slowing downJLL
All the coolest tech companies are in Silicon Valley, right? Not anymore! Where are tech companies moving and what improvements are they making to attract the best talent? Our new tech infographic, and corresponding technology construction outlook, explore these trends and the resulting cost to companies. See more at http://bit.ly/1mf12Y3
Leasing volume has been stuck in neutral for several quarters. Nevertheless, activity in the Midtown, Central Perimeter, North Fulton and Northwest remains steady with corporate relocations boosting demand as well.
Colliers International: U.S. Flexible Workspace Outlook ReportDarren Shaw, SIOR
The latest U.S. edition of the Flexible Workspace Outlook Report is now available. The report, part of a series to be updated subsequently with data from Canada and Latin America, will be integrated with the APAC and forthcoming EMEA editions as well. This report highlights the current state and future trends of the flexible workspace market, how it is impacting both occupiers and investors, and where opportunity exists for our clients.
Demand for new technology space is not slowing downJLL
All the coolest tech companies are in Silicon Valley, right? Not anymore! Where are tech companies moving and what improvements are they making to attract the best talent? Our new tech infographic, and corresponding technology construction outlook, explore these trends and the resulting cost to companies. See more at http://bit.ly/1mf12Y3
Washington, DC Office Sector Report (Q2 2016)Savills Studley
Renewals and early restructures dominated the leasing landscape during the second quarter and tenants continued to return space to the market. These factors have translated into myriad opportunities for tenants to restructure existing leases or lock in generous concessions to relocate to space that better fits their culture and way of working.
Hong Kong replaces London as most expensive Global CitySavills Studley
The Savills Global Tenant Rep Guide presents a quarterly snapshot of occupancy costs for prime office space throughout the world as provided by expert, local tenant representation professionals.
This quarter’s Guide includes a focus on London, which has been replaced by Hong Kong at the top of the rankings following a 14.75% fall in total occupancy costs since the UK’s decision to leave the European Union. Concentrated on the core West End submarket to which our data relates, we examine what has contributed to this fall, how the market now looks for both landlords and tenants, and what the future may have in store.
Washington, DC Office Sector Report (Q3 2016)Savills Studley
Office fundamentals in the region have remained soft throughout 2016 resulting in a leasing landscape that is extremely favorable to tenants. The on-going tendency for tenants to rightsize and consolidate, rather than expand, has contributed to the elevated availability. Tenants remain firmly in the driver’s seat as they have no shortage of space options from which to choose and concession values remain at record-high levels.
Despite perceptions to the contrary, we see many suburban tenants continuing to expand and seek new amenity-rich properties within the Chicago suburban footprint. Recently, telecom giant Verizon moved from its 125,000 square foot location in Elgin to a new 160,000 square foot space in Rolling Meadows.
We found that companies can save more than $15.00 per square foot on average (Q2 2016) for Class A space in Chicago’s suburbs compared to the CBD.
A broader tenant shift towards Class A space has brought opportunities within the existing Class B suburban market, especially in the Northwest submarket. As of Q2 2016, the Class B vacancy rate in Northwest now exceeds 35 percent.
U.S. office market statistics (Q4 2014) and 2015 outlook JLL
Now at its strongest point in the recovery, the economy grew by nearly 3.0 million jobs in 2014, pushing unemployment to its lowest level since the third quarter of 2008. As a result, markets across the country recorded expansionary activity as corporate confidence grew along with demand for office space. Annual net absorption totaled 54.7 million square feet driving vacancy to 15.6 percent—its lowest point since 2008—a trend expected to continue over the next 24 months.
While challenges exist ahead, including historically low labor force participation and the recent fall in oil prices, forecasts for 2015 and 2016 across the U.S. project the highest growth in more than a decade.
Learn more and see market-by-market data at http://bit.ly/1yy1zss
According to the most recent estimates from the BLS, total non-farm employment in Pittsburgh stood at ~1.2 million payrolls, representing an annualized increase of 9,100 jobs or 80 basis points. Meanwhile, unemployment decreased 1.7 percentage points year-over-year to 4.3 percent.
Washington, DC Office Sector Report (Q2 2016)Savills Studley
Renewals and early restructures dominated the leasing landscape during the second quarter and tenants continued to return space to the market. These factors have translated into myriad opportunities for tenants to restructure existing leases or lock in generous concessions to relocate to space that better fits their culture and way of working.
Hong Kong replaces London as most expensive Global CitySavills Studley
The Savills Global Tenant Rep Guide presents a quarterly snapshot of occupancy costs for prime office space throughout the world as provided by expert, local tenant representation professionals.
This quarter’s Guide includes a focus on London, which has been replaced by Hong Kong at the top of the rankings following a 14.75% fall in total occupancy costs since the UK’s decision to leave the European Union. Concentrated on the core West End submarket to which our data relates, we examine what has contributed to this fall, how the market now looks for both landlords and tenants, and what the future may have in store.
Washington, DC Office Sector Report (Q3 2016)Savills Studley
Office fundamentals in the region have remained soft throughout 2016 resulting in a leasing landscape that is extremely favorable to tenants. The on-going tendency for tenants to rightsize and consolidate, rather than expand, has contributed to the elevated availability. Tenants remain firmly in the driver’s seat as they have no shortage of space options from which to choose and concession values remain at record-high levels.
Despite perceptions to the contrary, we see many suburban tenants continuing to expand and seek new amenity-rich properties within the Chicago suburban footprint. Recently, telecom giant Verizon moved from its 125,000 square foot location in Elgin to a new 160,000 square foot space in Rolling Meadows.
We found that companies can save more than $15.00 per square foot on average (Q2 2016) for Class A space in Chicago’s suburbs compared to the CBD.
A broader tenant shift towards Class A space has brought opportunities within the existing Class B suburban market, especially in the Northwest submarket. As of Q2 2016, the Class B vacancy rate in Northwest now exceeds 35 percent.
U.S. office market statistics (Q4 2014) and 2015 outlook JLL
Now at its strongest point in the recovery, the economy grew by nearly 3.0 million jobs in 2014, pushing unemployment to its lowest level since the third quarter of 2008. As a result, markets across the country recorded expansionary activity as corporate confidence grew along with demand for office space. Annual net absorption totaled 54.7 million square feet driving vacancy to 15.6 percent—its lowest point since 2008—a trend expected to continue over the next 24 months.
While challenges exist ahead, including historically low labor force participation and the recent fall in oil prices, forecasts for 2015 and 2016 across the U.S. project the highest growth in more than a decade.
Learn more and see market-by-market data at http://bit.ly/1yy1zss
According to the most recent estimates from the BLS, total non-farm employment in Pittsburgh stood at ~1.2 million payrolls, representing an annualized increase of 9,100 jobs or 80 basis points. Meanwhile, unemployment decreased 1.7 percentage points year-over-year to 4.3 percent.
1. Savills Studley Report
Silicon Valley office sector Q1 2016
Savills Studley Research
Silicon Valley
SUMMARY
Market Highlights
RENTAL RATE JUMPS
Regional overall asking rent, $3.65, rose
by 2.3% for the quarter and by 7.1% for
the year. The Class A rate, $3.59, jumped
quarterly by 0.9%, with a more moderate
0.7% annual increase.
VACANCY PUSHES LOWER
The overall vacant availability rate decreased
by 0.7 pp to 7.6% and has declined by 2.9
pp year-on-year. The Class A rate, 6.9%, fell
quarter-on-quarter by 0.8 pp and year-on-
year by 5.0 pp.
LEASING SLOWS
Deal volume totaled 7.5 msf in the four
most recent quarters, a 14.1% decrease
from the four prior quarters but slightly
above the market’s long-term average of 7.4
msf. Overall, this signals a shift to a more
subdued market.
"Despite growing concern about the
challenging conditions for start-ups
and a weak IPO market, leading tech
companies in the Valley continued
to make major moves during the first
quarter. Leasing has shifted, though, to
a pace that is more typical of the long-
term trends in the Valley."
Chris Errecart, Managing Director
2. 02
Savills Studley Report | Silicon Valley
Leasing Steady Despite
Growing Concerns
The sweet spot of the cycle when tech
firms could do no wrong and were priced-
for-perfection appears likely to be in the
rear view mirror. Over the last few quarters
investors have been making harsher
judgments about the value of startups,
poking holes in their financials and holding
them accountable when they do not hit
revenue benchmarks. Compared to San
Francisco, leasing fundamentals in the Valley
have not contracted as sharply, though.
The unrelenting pursuit of talent and office
properties by Google, Apple and other top
employers in Silicon Valley has kept market
activity elevated. Deal volume totaled 7.5
msf in the four most recent quarters, a
14.1% decrease from the four prior quarters,
but slightly above the market’s long-term
average of 7.4 msf. This total does not
include some of the recent purchases
of complexes by Google, Microsoft, and
Facebook. One of the most telling numbers
is sublet space. San Francisco’s sublet
supply has soared to its highest mark since
2010. In the Valley it has increased less
sharply. Additionally, the list of larger and
mid-sized tenants looking for either flex or
office space in Silicon Valley remains quite
long. Smaller and mid-sized firms are at
times being outbid for talent and space, and
may be paying a higher price for capital.
Stock Devaluation Hurts in Many
Ways
Tech firms are paying a high price for going
public, or even securing private funding,
as investors grow more skittish. Venture
capital firms and mutual funds continue to
have success raising funds, but they are
being increasingly selective about which
tech startups to place a stake in. A study of
several large mutual funds that hold shares
in 40 tech startups, conducted by the Wall
Street Journal, found that 13 of them are
now valued an average of 28% below their
original purchase price. This is a big jump
from a year ago when only three startups
were underwater.
Intel’s potential sale of its venture capital
business could further exacerbate the
devaluation of tech stocks. During 2015,
Intel invested $514 million in 143 companies
including innovative new security software
and wearable device companies. If they
unload these investments at a loss it could
have a corrosive effect on other investors in
the same or similar companies. On the other
Source: Bureau of Labor Statistics
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
-8.0%
-6.0%
-4.0%
-2.0%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
0.00
0.05
0.10
0.15
0.20
0.25
0.30
0.35
0.40
Millions
SVAL.Office Emp. SVAL. (% Annual Change) U.S. (% Annual Change)
Office-Using Employment Trends
$3.59
$2.67
$3.67
$2.23
$0.00
$1.00
$2.00
$3.00
$4.00
2016 1Q2015 1Q2014 1Q2013 1Q2012 1Q2011 1Q
($/sf)
Rental Rate Trends
Class A Class B & C
Asking Rent Trends
6.9%
24.3%
7.9%
16.1%
0%
5%
10%
15%
20%
25%
30%
2016 1Q2015 1Q2014 1Q2013 1Q2012 1Q2011 1Q
(%) Availability Rate Trends
Class A Class B & C
Vacant Availability Rate Trends
3. savills-studley.com/research 03
Q1 2016
Tenant Sq Feet Address Market Area
Toshiba 218,645 55 W Trimble Rd North San Jose
Hitachi 111,688 Great Oaks Pky South San Jose
Google 111,443 1001 N Shoreline Blvd Mountain View/Los Altos
Toshiba 94,515 55 W Trimble Rd North San Jose
CMC CHA Enterprises LLC 74,276 4500 Great America Pky Santa Clara
WeWork 67,768 75 E Santa Clara St Downtown San Jose
Telenav 55,000 4655 Great America Pky Santa Clara
Apple Inc 53,208 10101 N De Anza Blvd Cupertino
SpiderCloud Wireless 50,374 475 Sycamore Dr Milpitas
8x8 36,174 2665 N 1st St North San Jose
hand if Intel times the market right, or if it is
holding particularly assets that investors
deem valuable, it could give the market a
boost.
Stock devaluations also hurt the ability of
newer startups to compete with established
tech firms for talent. Until recently startups
could dangle equity stakes in front of
talent as part of a recruiting package, now
prospective employees - much like investors
- are likely to focus on the “potential” value
of these stakes. Additionally recruiters
specializing in tech sector placement have
started to note a slowdown in the quit ratio.
Talent is becoming a bit less demanding
and less willing to jump to newer companies
who offer a big stake in a new enterprise.
As one commentator recently said, talent is
becoming “wary of boarding a sinking ship.”
Larger Tech Companies Unfazed
Meanwhile in the leasing market, tenants
remained active across the Valley with little
immediate sign of a pullback in demand.
Tenants were active in multiple submarkets
with notable leases completed in South San
Jose, Mountain View/Los Altos, Santa Clara
as well as Downtown San Jose. Hitachi
renewed its 111,688-sf lease at Great
Oaks Parkway in South San Jose. Google
remained aggressive. In late December they
signed a 111,443 sf lease for the entirety of
1001 N Shoreline in Mountain View.
Additionally Google agreed to buy NetApp’s
campus on Orleans Drive and Crossman
Avenue for $250 million. The eight-building,
600,000-sf campus sold for $420/sf a high
mark for the Valley but a bargain relative
to San Francisco. The purchase is seen
as yet another effort by Google to line up
future development. Just before the quarter
closed, Google inked yet another lease,
taking the bulk of Motorola’s space at 1000
Enterprise Way at Jay Paul’s Moffett Towers
project in Sunnyvale. Motorola announced
layoffs for this location late last year, and will
be keeping one 40,000-sf floor of space,
with Google taking the other 280,000 sf at
the property.
Following extensive activity in 2015, activity
cooled a bit in North San Jose in early 2016.
Toshiba’s 218,645-sf lease at M West’s Orchard
Trimble Campus (55 W Trimble Road, 2610
& 2630 Orchard Parkway) along Plumeria
Drive in Renovation Row was the biggest deal
for North San Jose in the first quarter. The
220,000 sf campus deliverd in 1986. Amenities
at the complex were upgraded in 2014 were
repositioned and now feature a private outdoor
collaboration area with barbecue, bocce courts,
and an amphitheater.
Renovation Row still has a few other big blocks
of R&D space available. Ericcson’s move to
Santa Clara created a 300,000 sf vacancy on
Holger Way. Additionally once Cisco relocates
from Champion Station it will open up about
520,000 sf in 2017.
Downtown San Jose Active, but Tech
Still Steers Clear
Meanwhile, Downtown San Jose captured a few
noteworthy deals, but leasing was once again
driven primarily by non-tech sectors. WeWork
leased four floors totaling 75,000 sf at 75 E
Santa Clara Street in Downtown San Jose. This
was the largest new lease for Downtown San
Jose since 2014 when Intacct and Xactly each
took about 60,000 sf. For all of the talk about
difficulty raising capital, or the costs associated
with doing so, WeWork successfully finished a
$430 million Series F funding round in March,
with authorization to issue a further $350 million
of Series F Prime stock. The lease fills a big
hole as well for Harvest Properties and Invesco
Real Estate, which paid $62 million or $150/sf
for the building in July. The owners are about
to kick off a major upgrade to amenities at the
two-building complex now known as Towers @
2nd that will include a “VIP lounge”, conference
facility, fitness center and upgrades to outdoor
areas. Of note, also in Downtown San Jose
AECOM renewed its 17,601 sf lease at 100 W
San Fernando Street and Inside Source took
16,500 sf at 300 Park Avenue. Another shared
space provider, Regus, is rolling out its new
tech-focused Spaces concept to compete more
directly with WeWork, and leased nearly 30,000
sf at 3031 Tisch Road.
Looking Forward
Larger tech titans have been on a buying spree
of late, with large asset purchases by Google,
Facebook, Apple and Microsoft. Some firms
are deciding to relocate, either by selling off
their facility as NetApp did, or relinquishing the
contentious renewal battle. In the Valley the race
for space is still only eclipsed by the competition
for talent.
Availability Rate Comparison Rental Rate Comparison
Major Transactions
$6.09
$5.71
$5.16
$3.65
$3.51
$3.49
$3.42
$3.19
$2.89
$2.73
$2.54
$1.76
$1.64
$1.45
$3.25
$2.98
$0 $1 $2 $3 $4 $5 $6 $7
Palo Alto
Menlo Park
Mtn View/Los Altos
Silicon Valley
South San Jose
Sunnyvale/Cupertino
Campbell/Los Gatos
Santa Clara
Downtown San Jose
US Index
North San Jose
Milpitas
Fremont
Morgan Hill/Gilroy
Sublet
Existing Direct
($/sf)
Overall Rental Rate Comparison
Type
2.2%
2.5%
3.8%
4.3%
5.6%
6.9%
7.4%
7.6%
7.6%
8.6%
11.3%
14.1%
17.0%
21.4%
0% 5% 10% 15% 20% 25%
Palo Alto
Sunnyvale/Cupertino
Mtn View/Los Altos
Morgan Hill/Gilroy
Campbell/Los Gatos
Menlo Park
Santa Clara
Fremont
Silicon Valley
South San Jose
North San Jose
Downtown San Jose
US Index
Milpitas
(%)
Availability Rate Comparison
