SAN JOSE – A huge wave of commercial property construction is underway in the Bay Area, and Silicon Valley’s economic boom is fueling the growth, according to a report released Wednesday.
Construction of new buildings for offices, research and development and industrial uses is galloping ahead at a “feverish” pace, a report released by Joint Venture Silicon Valley and commercial realty brokerage JLL stated.
“This is a construction boom like no other,” said Russell Hancock, president of San Jose-based Joint Venture Silicon Valley, a private-public organization. “There is a lot of confidence in the Silicon Valley economy. People who are developing buildings are quite sure that they are going to get leased up. And they are getting leased up.”
Mountain View-based Google, Cupertino-based Apple, Menlo Park-based Facebook, San Jose-based Adobe Systems and Seattle-based Amazon are among the companies that – through a combination of leases, property purchases and land assemblies – have completed huge building deals or are actively taking steps to do so.
“It’s insane how busy this market is,” said Christan Basconcillo, research manager with JLL. “Each of these development projects are not just single buildings, they are multiple buildings, totaling 200,000, 300,000 square feet each, that make up an entire large campus.”
One example of how much construction is now underway: JLL’s research for Joint Venture Silicon Valley showed that from 2015 through 2017, nearly 21 million square feet of commercial space was constructed – a vast amount that exceeded the 18.6 million total square feet built in the prior 13 years combined.
The 21 million square feet built in the last three years is the rough equivalent of seven to 10 major regional shopping malls.
“Silicon Valley continues to experience economic expansion and employment levels that are higher than at the height of the dot-com boom,” the report stated. “Although job growth rates have tapered off slightly, the region continues to develop a significant amount of new commercial space to accommodate the expansion.”
Yet as dramatic as this construction activity might seem, the appetite by major tech companies appears to be sufficient to fill the buildings on a steady basis.
Case in point: Facebook, which is growing dramatically in its hometown of Menlo Park, struck a deal in March for another huge expansion by leasing roughly 1 million square feet of new offices in Sunnyvale. The buildings that the social networking company rented aren’t even completed yet.
Google is buying properties for a transit-oriented village in downtown San Jose, a development that is expected to be large enough to accommodate 15,000 to 20,000 of the search giant’s employees.
Amazon has quietly leased enough buildings for a million-square-foot presence in Sunnyvale, has obtained offices in Mountain View and has established a beachhead for its Lab 126 research unit in downtown San Jose.
Adobe Systems has bought a parcel in downtown San Jose that would enable the tech company to add a fourth office tower to its existing headquarters complex of three office high rises.
Apple has moved into a huge new Cupertino campus and has assembled enough land and buildings in north San Jose for another major operations center.
The report warned that the pace of construction of office and other commercial buildings is meeting demand for new workers that might outstrip available housing. But the gap between hiring and housing development could be starting to close.
“This area’s housing development is starting to keep pace with the job growth,” said Steve Levy, director of the Palo Alto-based Center for Continuing Study of the California Economy.
One thing is certain, the pace at which tech companies are occupying space is unlike anything that commercial real estate veterans can recall.
“We are in new territory,” said Chad Leiker, a first vice president with Kidder Mathews, a commercial real estate firm. “I haven’t seen anything like this. This may have been what it was like when Silicon Valley was starting up in the 1970s and 1980s.”
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