Commercial Real Estate Investments Soar In Silicon Valley

Commercial property sales boomed in Silicon Valley last quarter, but vacancy rates remain high across the region.

An increase in investment activity between July and September brought total commercial property sales in South Bay to $ 6.3 billion year-to-date. According to a new report by the Institute for Regional Studies of the Silicon Valley joint venture, this is the highest sales volume for the region since 2015.

The uptrend is mainly being driven by institutional investors looking for safe havens to place their dollars in, said the report’s author, Ricky Manago.

“If you have millions of dollars under management in a pandemic, you want to put those funds into something really reliable,” he told San Jose Spotlight. “What better place to invest than in a property fully let by Verizon, for example, which Coleman Highline rented last year?”

Manago said it was a breeze to invest in commercial properties rented by tech companies, given the near zero risk of default.

“In contrast, investing in multi-tenant buildings in San Francisco’s Community Benefit District is much riskier,” he said, noting that these types of properties have higher tenant turnover and tenants who may not pay.

Mark Ritchie, president of real estate company Ritchie Commercial, told San Jose Spotlight that sales activity for commercial investments was robust during the COVID-19 pandemic. He said the region is full of venture capital, startups, unicorn companies, and biotechnology.

“If you look at the leases in Silicon Valley in a week, most cities hope to do it in a year,” he said.

The Silicon Valley region continues to have the lowest commercial property vacancy rates of any major market in the country, according to the report. The average vacancy rate for office buildings rose to around 13.3% in the last quarter, compared to 10.7% in the third quarter of 2020.

Manago said a handful of companies may have contributed to the small spike in office vacancy rates last quarter, noting that NetApp abandoned its 700,000-square-foot campus in Sunnyvale. He noted that office workers’ return looked promising this summer until the Delta variant hit the market, prompting companies to extend home office policies.

Derrick Seaver, president of the San Jose Chamber of Commerce, said teleworking continues to have a significant impact on small businesses in the area.

“Since people work from home, it does a lot fewer things like dry cleaning or changes their daily shuttle structure like where they pick up their donut and coffee on the way to work,” said Seaver.

Seaver’s organization is taking a multi-pronged approach to helping companies still struggling to recover from the pandemic. He said a key focus is on finding strategies to get workers back into offices – a challenge that preceded the pandemic.

“Our political committees will continue to deal with it,” he said.

Ritchie believes that most companies will bring their employees back to the office at some point. He said the real victims of the pandemic in the commercial real estate world are older professional service companies and non-tech companies that have already been hit by tech companies.

“It was brutal,” he said. “It is this sector of the economy that is being put out of business by the giant tech companies that are everything.”

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Copyright © 2021 by Bay City News, Inc. Republication, redistribution, or other reuse is prohibited without the express written consent of Bay City News, Inc.