Colliers Called it — 2021 Was a Good Year for Silicon Valley’s Commercial Real Estate Sector
QuickDraw Fund Control is well-known for delivering comprehensive fund control services to construction projects in key markets across the U.S., and it keeps a close watch on trends that affect its partners in each one of those markets.
Way back in February 2021, Colliers’ annual forecast predicted good things for Silicon Valley’s office and research-and-development (R&D) sectors along with continued growth in its industrial market.
And according to the latest CBRE report, Silicon Valley’s commercial property market had its biggest year ever in 2021, with the highest dollar volume ever recorded for office building purchases — $8.71 billion. This figure is 36% above the average purchase volume of $6.39 billion for the five years from 2017 through 2021.
“Pent-up demand amid a recovering market resulted in 132 properties containing 15.1 million square feet changing hands,” CBRE stated.
This boom stands in sharp contrast with 2020, which saw pandemic-related business shutdowns and massive layoffs that battered both the economy and commercial property markets.
The unprecedented demand for office and R&D buildings seems counterintuitive at this juncture, considering that Big Tech sent a number of its employees home to ride out the pandemic and that many companies have decided to make long-term accommodations for remote workers. It stands to reason that an inflated market like Silicon Valley would be in decline right now, but the opposite is proving true.
While many companies will likely downsize their office space, or even dump it entirely, for a remote work model, Silicon Valley’s Big Four, Google, Apple, Facebook Inc., and Amazon.com Inc., “continued to grow and expand amidst the pandemic,” said Lena Tutko, senior research manager at Colliers.
She predicts that while hybrid/work-at-home models require less space, those companies who bring employees back with accommodations for social distancing will actually need more room for people to spread out. Companies are still transitioning to whatever is the “new normal,” and it’s still difficult to say exactly what that will look like.
But as vaccinations increase and Covid rates decline, the region’s demand for office space seems to be gaining momentum. Along with Big Tech, growing life science firms are helping to drive demand in the Valley’s R&D market, while E-commerce is driving the industrial market.
With regard to the leasing sector, Tutko said that “Amazon is pre-leasing much of the Valley’s industrial product, meaning there is no new supply added, which keeps vacancy low, rents high and tenant mobility limited.”
In 2021, the largest commercial property transaction in Santa Clara County was the $780 million purchase of three office buildings by a London-based investment firm. The buildings, located in a section of North San Jose’s Coleman Highline tech campus complex, are leased to Yahoo.
The second-largest acquisition in the county was the $630 million purchase of two office buildings, a movie theater and a parking garage in Mountain View. The offie building are leased to Facebook.
While building occupancy rates may not return to normal in many cities for a period of years, Silicon Valley’s recovery is expected to come much sooner. Even though many tech companies are likely continue to let their employees work remotely, those with more collaborative models will seek to woo employees back to the office and even expand their digs. This anticipated return to the office is holding real estate investors’ interest in Silicon Valley. Prices may be high, but investment could still be a good gamble, provided investors get in before the post-pandemic demand for office space surges.
QuickDraw is the go-to fund control partner for residential, commercial and industrial construction projects of every size, style and price point. From coast to coast, QuickDraw works to make the fund disbursement process a positive experience for all, with an array of related services, including: Fund Control, Site Inspections, Cost Reviews and Portfolio Management.