6 Silicon Valley Trends to Watch for in 2016
The Silicon Valley market has been booming with office space in many submarkets tighter than San Francisco. But what's next for the country's tech mecca?
Bisnow caught up with Cushman & Wakefield director of research Julie Leiker to see what we should expect for 2016 (here she's on vacation in Scottsdale, AZ, last year). Here are her top six predictions for Silicon Valley in the coming year.
1. Rents Will Keep Rising in Top Markets
In stronger markets like Palo Alto and Mountain View (that's the Google campus in Sunnyvale, above), rents will continue to rise, because there is a lack of inventory. So while rents will rise there, more deals will move into tertiary markets where rents have historically been lower—keeping the average for Silicon Valley relatively flat.
2. Vacancy Rates Will Slip in Tertiary Markets
Big tech companies are gobbling up large blocks of space in the top markets, so deals are moving into North San Jose, Milpitas and Fremont as tenants get priced out. Then there are deals such as Apple's move forward on what could result in a 4.15M SF campus in North San Jose (one building from that site shown above). That drives up the appeal in that area for companies that do business with Apple and want to be near the tech giant. North San Jose is becoming more active, with repositioned office space along the North First Street corridor leasing up during Q4 2015, which will likely mean even more companies pushing into Milpitas and Fremont in 2016.
3. Spec Development Moves Forward
While there is more spec development in the pipeline, not much of it is going to be completed in 2016. Most is slated for completion in 2017, 2018 and beyond. Jay Paul will start construction on 1.8M SF of office space on Lockheed Martin's former property in Sunnyvale, and Irvine Co is building a mixed-use called Santa Clara Square with 1.1M SF of office space (shown above), both slated to finish in 2017. With the demand and limited supply, however, it's likely that many spec projects will secure interest and leases shortly after they break ground.
4. Class-A Shortage Leads to Class-B Boost
As existing product is leased, it's the larger blocks of Class-A, newer product that is going the fastest. That will create a significant deficit in Class-A in 2016 and until the spec projects are complete in 2017-2018. Tenants who want large spaces will have to take Class-B or go back to looking at tertiary markets. (The trend can account in part for the hot reception for sites on Orchard Parkway's "Renovation Row," such as THE Campus, above.)
5. More Build-to-Own Breaks Ground
Several companies have plans in the works for their own buildings, which gives them more control over growth or downsizing. Apple's building its 2.8M spaceship campus in Cupertino (scheduled to be competed at the beginning of 2017). Nvidia is tearing down the one-story buildings it purchased in Santa Clara in 2008 and starting construction on the first of two 500k SF buildings, shown above. LinkedIn is building a project in Mountain View, as is Intuit.
6. Downtown San Jose Keeps Surging
Downtown San Jose has the access to Caltrain that technology companies want, and mixed-use is gaining great traction in San Jose and elsewhere in Silicon Valley, because it can bring both housing and jobs. Silicon Valley's critical housing shortage will continue to be an issue. San Jose has several residential projects going forward, and projects such as Trammell Crow's plans for the property purchased from Adobe Systems in September, which will be a mix of 800k SF of office space, 325 apartments and retail. These help entice tech companies further into San Jose because they offer an option where employees can live near work, rather than being shuttled in.
