Silicon Valley’s biggest commercial real estate stories of 2013


One of the biggest stories of the year: Nvidia’s corporate campus plans in Santa Clara. It was part of a wave of campus projects either proposed or to start construction this year.

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It was a good year to be a reporter covering real estate in Silicon Valley. I got to cover Google’s breathtaking property purchases, Equity Office’s stunning sell-off, as well as record commercial development and construction activity.

Silicon Valley’s vacancy rates didn’t tighten all that much, and there weren’t too many of the ginormous deals that landed in 2011 and 2012. At the start of this month, Colliers International recorded 16.17 percent vacancy in the office market — which is actually up from 15.58 percent a year ago. (Our biggest lease of the year, at Microsoft’s Mountain View campus, was actually a renewal.)

Still, net absorption — the space companies leased, minus the space they gave up — was positive each of the first three quarters (Q4 final numbers are still a few weeks out), according to Colliers. The dynamic is partly explained by the addition of new speculative office space coming onto the market. And vacancy rates in hot markets, such as Sunnyvale, are below single digits. Not surprisingly, average asking rents have increased from $2.82 a square foot in December 2012 to $3.18 a month in December.

I’ve put together a few takeaways from 2013. Some are major story lines and themes that carried through the year. Others are simply high-impact stories that I thought deserved their own spot. But I’m sure I missed some news. What would you add? Let me know with an email or, better yet, in the comments.

Growing Google: Google accounted for three of the top 10 leases this year, and that doesn’t count their more common M.O. these days: Buying stuff. The search giant bought up a storm this year, right up until the end.

The deal that topped them all was Google’s $235.5 million acquisition of more than 400,000 square feet in Mountain View from Equity Office. Perhaps more interesting was its planting of a flag in Palo Alto: Google paid $66.7 million for a collection of buildings off East Meadow Circle there in the summer, and has continued to assemble land for what could be a new satellite campus there.

As the year came to a close, rumors were circulating that Google might be on the verge of a huge land deal in San Francisco’s Mission Bay.

(BTW, Google’s big leases this year were for 500,000 square feet at 100 Mayfield Ave. in Mountain View; 232,000 square feet at 815 11th Ave. in Sunnyvale; and 168,895 square feet in Mountain View.)

Apple Campus 2, aka the spaceship, approved; early construction starts: In October, Cupertino approved Apple’s circular campus, which at 2.8 million square feet one of the largest single office buildings in the country. Apple wasted absolutely no time knocking down many of the existing structures there. Construction is expected to create an economic surge: An estimated 9,000 union construction jobs are expected to be associated with the project. Eventually the campus will house 14,000 employees. An economic impact study commissioned by Apple pegged the value of the project at $3 billion, though reports suggest it could cost more than that.

The start of construction adds fodder for a common real estate parlor game these days: Whether Apple will stay in, or leave, all the space it has leased in Sunnyvale and Santa Clara in recent years, when the spaceship lands.

The campus arms race: Speaking of campuses, owner-users and developers executed major campus plans: Samsung Semiconductor, Facebook Inc. and Apple Inc. led the pack, and all three have projects under construction. Kilroy Realty Corp. is well underway on anew home for LinkedIn in Sunnyvale. More is on the boards: In February, we revealed Nvidia Corp.’s striking campus plans in Santa Clara, which continue to move forward. (We would include Google’s project called Bay View, but construction is taking a breather as it is currently being redesigned.)

All of the world has brought new construction companies into the region, even as some worry about a lack of labor to carry out the plans.

Equity Office’s sales spree: One of the Valley’s largest and most storied landlords, Equity Office, sold a ton of property this year. (Translation: several million square feet.) The company ended the year with a bang, offloading one of its crown jewels, 225 West Santa Clara St. In late November, I wrote that EOP was down to about 6 million square feet in Silicon Valley, from 10 million square feet at its peak, but EOP has done several major deals since then. The sell-off likely represents an ordinary exit given a five- to seven-year hold strategy of EOP parent Blackstone Group, which acquired EOP in 2007.

High prices! Investment sales were very strong in 2013. In Palo Alto, $1,000 a foot became basically the new normal, as investors backed by institutional money paid top dollar for buildings in core locations. See: 130 Lytton Ave.555 Hamilton Ave., and 661 Bryant St. (All in Palo Alto, near Caltrain.) Investors also bought big in Sunnyvale (See: Lane Partners) and Santa Clara (Irvine Company, anyone?). And secondary markets like Downtown San Jose picked up, with two high-profile towers selling in the final weeks of the year.

According to data from Real Capital Analytics, $2.25 billion worth of office in San Jose changed hands through October, a 70 percent increase over last year. RCA’s Commercial Property Price Indices, which measures the change in commercial property prices over time based on numerous inputs, shows pricing in the San Jose area has jumped 11 percent year over year and have now reached 91 percent of their 2007 peak.

Cisco shrinks its land and building holdings: There was once a time when Cisco Systems Inc. was growing its real estate like a weed. Yeah, those days are pretty much over, folks. Cisco sold two major chunks of land in 2013: First, in April it offloaded 57 acres in North San Jose to Trammell Crow Co. The next month, it sold 150 acres in Fremont south of Pacific Commons to Integral Communities. In September, it sold eight of its buildings in North San Jose (for a total of 800,000 square feet) to TMG Partners, which will rehab the buildings and put the space on the market after Cisco vacates. Cisco has laid off thousands of workers this year, but the real estate deals are more related to a shift in real estate strategy, with Cisco spending millions to retrofit existing buildings for more dense floor plans.

Evolving Santa Clara: Santa Clara is not the tightest — or most expansive — Silicon Valley real estate market. But it experienced significant activity this year on the development side, largely spurred by the Levi’s Stadium project. Most notably, two development proposals for land just north of the stadium have the potential to give the city a “there there,” according to the project’s applicants — Related California and the Montana Group/Lowe Enterprises. Some basics here, more details here and here.

Arrillaga’s San Jose megacampus for mystery tenant: In September, we told you about Peery-Arrillaga’s massive North San Jose office plans, and hinted that there might be a tenant. City officials say that there is a tenant, but if they know who it is, they’re not saying. We might know more early next month as the 2 million-square-foot project comes up for final approvals. Stay tuned…

Google airport landing in San Jose: Just about everyone was caught off guard when a city memo in February disclosed that Google Inc.’s head honchos wanted to move their jets to a new, private aviation facility at Mineta San Jose International Airport. Signature Flight Support, a major fixed-base operator (aka private plane storage and gas supplier) will build the $82 million facility on 29 acres. Signature hopes to begin construction next month. The impact on surrounding real estate might not be cause-and-effect. But if the airport is good enough for Google, maybe the city’s office market could be, too?

Those are the big themes. But it’s a business based on individual deals, and I wanted to give you a quick-hit rundown of some other major news of the past year.

Bass Pro Shops agrees to huge, 145K sq. ft. San Jose lease. (February) This is its first in the region. The retailer is currently into the city with permits.

Century Theater property owners seek developer to ground lease 11.6-acre site. (April) There’s lots of rumors circulating right now regarding who is on this deal.

Twitter moves into Sunnyvale. (May) The SF-based microblogging site has already doubled in size in Sunnyvale. Look for more leasing here.

Sobrato taps Rob Hollister to take over day-to-day ops. (July) A changing of the guard got underway at one of the Valley’s most important and influential firms.

Chinese investor buys Scotts Valley former Borland campus (September) A small deal (less than $13 million), but emblematic of more foreign capital poised to enter the Valley.

55-acre food distributor deal could bring hundreds of jobs to Gilroy (September) Distribution and logistics are growing, and I’d expect more projects like this one in 2014.

Mercury News sells HQ to Super Micro for $30.5M (September) Super will eventually construct new manufacturing facilities here, a sign of a nascent resurgence in manufacturing in the Valley. The paper is still in the hunt for space.

Trammell Crow bets on more SJ manufacturing (September) See above.

Community Towers, in default, heads back to bank (November) A well-known commercial office property in downtown San Jose was taken over by its lender, which is now looking to sell it.

Jay Paul wins approval for massive new Sunnyvale campus (December). The legendary developer is at it again in Moffett Park, even as he pulls out of Palo Alto (for now). Next up?Redwood City.


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