• Tue. Jun 21st, 2022

Commercial real estate investments soar in Silicon Valley

Commercial real estate sales exploded in Silicon Valley in the last quarter, but vacancy rates remain high across the region.

An increase in investing activity between July and September brought total sales of commercial real estate in South Bay to $ 6.3 billion year-to-date. This is the highest sales volume for the region since 2015, according to a new report from the Institute for Regional Studies of the Silicon Valley Joint Venture.

The rise is mainly due to institutional investors looking for safe havens to place their dollars, said report author Ricky Manago.

“If you are managing millions of dollars of funds in a pandemic, you want to invest those funds in something that is really reliable,” he told the San Jose Spotlight. “What better asset to invest in than a property fully leased by, say, Verizon, which leased last year with Coleman Highline?” “

Manago said it is obvious to invest in commercial properties leased by tech companies, as there is almost no risk that they will not pay their rent.

“On the other hand, if you are planning to invest in multi-tenant buildings in the community interest district of San Francisco, it’s so much riskier,” he said, noting that these types of properties have a higher tenant turnover and tenants who may not pay.

Mark Ritchie, president of real estate firm Ritchie Commercial, told the San Jose Spotlight that commercial investment sales activity has been robust throughout the COVID-19 pandemic. He said the region is teeming with venture capital, startups, unicorn companies and biotech.

“You look at the leases in Silicon Valley in a week, that’s what most cities hope to do in a year,” he said.

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

Manago said a handful of companies may have contributed to the slight increase in office vacancy rates in the last quarter, observing that NetApp left its approximately 700,000 square foot campus in Sunnyvale. He noted that the return of office workers looked promising this summer until the Delta variant appeared, prompting companies to expand work-from-home policies.

Derrick Seaver, president of the San Jose Chamber of Commerce, said telecommuting continued to have a strong ripple effect on small businesses in the area.

“As people work from home, it requires a lot less of things like dry cleaning, or it changes the structure of their daily commute like where they pick up their donuts and coffee on the way to work,” said Seaver.

Seaver’s organization is taking a multi-pronged approach to help businesses still struggling to recover from the pandemic. He said one of the main goals was to research strategies to get workers back to offices – a challenge that preceded the pandemic.

“Our political committees will continue to examine this,” he said.

Ritchie predicts that most businesses will eventually bring their employees back to the office. He said the real victims of the pandemic in the commercial real estate world are legacy professional service companies and non-tech companies, which are already being hit by tech companies.

“It was brutal,” he said. “It’s this sector of the economy that is interrupted by the giant tech companies that are everything.”

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

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