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Silicon Valley Commercial Real Estate Market Should Rebound in 2017

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Though the Silicon Valley commercial real estate market cooled down after an incredibly successful year in 2015, it picked up again at the end of 2016. The community is currently gearing up for another big year.

“After the biggest year on record in 2015 for office activity, we sort of had nowhere to go but down,” said Jeff Fredericks, executive managing director of the San Jose office of Colliers International, a commercial realty brokerage that issued the new report on Tuesday. “We predicted that office activity would come down to earth, and so it did.”

The Colliers Report, a popular forecast of health of the commercial real estate market in the Bay Area, states that in 2016, tenants with new leases filled a total of 8 million square feet of offices in Silicon Valley which adds up to about 22 percent from the 10.3 million square feet of offices that were filled during 2015. It was in the fourth quarter of 2015 when the slowdown began but it picked up again at the end of 2016 and into 2017.

“There are cracks in the armor,” Fredericks said. “But it is still a fundamentally strong commercial real estate market in Silicon Valley.”

JLL’s City Momentum Index reports that Silicon Valley is in the top three cities in the U.S. that exhibit the most dynamic attributes over the short and long term.

The attributes which make Silicon Valley commercial real estate market a dynamic market are grouped into three main sub-indices according to Multi-Housing News:

“Socio-economic momentum relating to changes in city GDP, population, air passengers, corporate headquarters and foreign direct investment; CRE momentum relating to changes in absorption, construction, rents, investment volumes and real estate transparency covering the office, retail and hotel sectors; and high-value incubators relating to the ability of a city to maintain momentum over the longer term (that is, its future-proofing capacity) in terms of education, innovation and environment.”

JLL City Momentum Index

However, overbuilding may be a problem for Silicon Valley commercial real estate market down the road about 5.7 million square feet of office buildings in Santa Clara County that are either unoccupied or are under construction with no commitments from occupants.

On the other hand, there is more good news than bad news for Silicon Valley. According to The Mercury News, “Among the positive developments anticipated for this year: Apple is expected to occupy 3.9 million square feet of office space this year, including the 3.1 million square feet at the company’s new campus in Cupertino. Palo Alto Networks is expected to occupy 950,000 square feet in Santa Clara. And, Fredericks added, six other companies have laid plans to occupy another 1.2 million square feet of offices in the South Bay.”

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