Real Estate Market Review Silicon Valley R&D · Silicon Valley R&D 1st Quarter 2019 RENTAL RATE The...
Transcript of Real Estate Market Review Silicon Valley R&D · Silicon Valley R&D 1st Quarter 2019 RENTAL RATE The...
1st Quarter 2019 | 1
Real Estate Market Review
Silicon Valley R&D
1st Quarter
2019
RENTAL RATE
The Silicon Valley R&D market growth remains strong for the first quarter. Total vacancies have dropped nearly 8% to 8.1% and asking lease rates increased 11.37% year-over-year to $2.35/s.f. NNN. Last year was one of the strongest years in history. Falling vacancies and rising rents help preserve momentum for 2019.
Vacancies & Rents
Reflecting the strength of the R&D market, total vacancy rates
have continued their steady decline and now stand at 8.1%.
This rate compares with 8.4% from the last quarter and 8.8%
last year. Milpitas posted the highest direct vacancy rate at
15%. Among the major markets, Santa Clara and Sunnyvale
enjoy direct vacancy rates of 4.5% and 3.5% respectively.
Available sublease space decreased 7.8% from last quarter to
2.2 million s.f.
Average asking lease rates have increased by 11.37% year-over-
year to $2.35/s.f. NNN. Palo Alto and Mountain View continue
to be the priciest R&D markets with asking rates at $6.48/s.f.
NNN and $4.28/s.f. NNN respectively. Fremont and Milpitas
occupy the other end of the spectrum with respective asking
rates of $1.51/s.f. NNN and $1.90/s.f. NNN. Tenant demand and
low supply for newer R&D spaces will likely drive rental rates
higher for 2019.
Leasing Activity
Leasing volume in Silicon Valley remained steady with 1.8 million
s.f. of gross absorption. San Jose led all cities with 219,913
s.f. leased. Santa Clara and Sunnyvale had similar activity with
89,425 s.f. and 82,660 s.f. respectively. Allogene Therapeutics
Market Forecast
ABSORPTION
CONSTRUCTION DELIVERIES
VACANCY
Continued, page 4
Net Absorption
Total net absorption finished at 373,119 s.f. Fremont recorded the largest positive absorption with 386,330 s.f.
Rental Rates
Average asking rates rose to $2.35/s.f. NNN, up 11.37% year-over-year. Palo Alto remains the most expensive submarket with an average asking rate of $6.48/s.f. NNN.
Vacancy Direct vacancy rates decreased 7.95% year over year to 7.3%. The largest submarket, San Jose, currently has a 10.7% direct vacancy rate.
Construction Deliveries
Newly finished renovations deliver 568,606 SF to the market.
1Q 2019 Market Highlights
2 | Silicon Valley R&D Real Estate Market Review
Market Breakdown
1Q 2019 4Q 2018 1Q 2018 Annual % Change
Vacancy Rate 8.10% 8.40% 8.80% -7.95%
Availability Rate 9.60% 9.50% 10.80% -11.11%
Asking Lease Rate $2.35 $2.30 $2.11 11.37%
Leased SF 717,644 1,583,926 1,712,825 -58.10%
Sold SF 1,636,097 2,531,621 2,078,689 -21.29%
Net Absorption 373,119 714,311 -185,182 N/A
Silicon Valley R&D Charts
Direct Vacancy Total Available Direct Lease Rate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
$0.00
$0.50
$1.00
$1.50
$2.00
$2.50
0%
5%
10%
15%
20%
25%
VACANCY & AVAILABILITY
Average Sales Price (PSF) Cap Rate
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD$100
$150
$200
$250
$300
$350
$400
0%
2%
4%
6%
8%
10%
12%
AVERAGE SALES PRICE & CAPITALIZATION RATES
Net Absorption (SF) New Deliveries (SF)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD
-2.0M
-1.5M
-1.0M
-500K
0
500K
1.0M
1.5M
2.0M
2.5M
3.0M
3.5M
NET ABSORPTION & COMPLETED CONSTRUCTION
Sales Volume (SF) Lease Volume (SF)
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 YTD0
2M
4M
6M
8M
10M
12M
SALES VOLUME VS. LEASE VOLUME
1st Quarter 2019 | 3kiddermathews.com
R&D Submarket Statistics
SubmarketTotal
Inventory
Direct Vacancy
Rate
Total Vacancy
Rate
Total Available
Rate
1Q Direct Net Absorption
1Q Total Net
Absorption
YTD Direct Net Absorption
YTD Total Net
Absorption
1Q Leasing Activity
YTD Leasing Activity
Avg NNN Rental Rate
Campbell 1,432,883 3.20% 3.20% 3.20% (4,025) (4,025) (1,040) (1,040) 29,794 35,538 $2.56
Cupertino 2,287,558 0.70% 0.90% 0.90% (13,220) 3,270 6,103 2,481 - 20,100 $2.72
Fremont 17,242,916 7.10% 7.50% 6.50% 373,044 386,330 (25,735) (44,579) 67,724 1,614,987 $1.51
Milpitas 9,416,243 15.00% 16.20% 16.20% 50,215 41,437 (416,188) (508,199) 5,882 462,068 $1.90
Mountain View 8,131,171 4.90% 6.10% 5.60% 34,899 62,660 (115,437) (140,228) 36,956 490,581 $4.28
Newark 3,729,570 0.80% 1.60% 0.90% (15,884) (15,884) 235,088 208,080 184,290 93,612 $2.12
Palo Alto 4,585,755 1.40% 2.20% 2.20% 72,121 35,521 38,061 161 1,000 216,051 $6.48
San Jose 39,244,351 10.70% 11.80% 9.20% (165,318) (256,945) 273,067 332,938 219,913 1,558,484 $2.08
Santa Clara 17,927,730 4.50% 4.80% 3.60% (43,763) 66,877 417,673 445,549 89,425 705,969 $2.35
Sunnyvale 16,406,970 3.50% 4.40% 2.80% 55,887 53,878 245,728 135,390 82,660 938,256 $2.92
Total 120,405,147 7.30% 8.10% 6.60% 343,956 373,119 657,320 430,553 717,644 6,135,646 $2.35
Notable Lease Transactions
THOUGHTSPOT
Central Research Park Sunnyvale
74,652 s.f.
MILTENYI BIOTEC
2825 North First St San Jose
51,578 s.f.
Notable Sale Transactions
HINES
Oakmead West Sunnyvale
431,095 s.f. $188M or $436/s.f.
ALEXANDRIA REAL ESTATE
3160-3170 Porter Dr Palo Alto
96,000 s.f. $100.25M or $1,044/s.f.
ALLOGENE THERAPEUTICS
7400 Gateway Blvd Bldg 1 Newark
117,889 s.f.
ROCHE
Central Campus Santa Clara
312,000 s.f. $140.5M or $450/s.f.
4 | Silicon Valley R&D Real Estate Market Review
Kidder Mathews is the largest, independent commercial real estate firm on the West Coast, with 800 real estate professionals and staff in 22 offices in Washington, Oregon, California, Nevada, and Arizona. We offer a complete range of brokerage, appraisal, property management, consulting, project and construction management, and debt equity finance services for all property types.
ASSIGNMENTS ANNUALLY
TOTAL # APPRAISERS/MAI’S
MANAGEMENT PORTFOLIO
51M+ 1,600+
PROPERTY MANAGEMENT VALUATION ADVISORY
36/23
ANNUAL TRANSACTION
VOLUME
$9B
ANNUAL LEASING SF
40M
ANNUAL SALES SF
20M
COMMERCIAL BROKERAGE
# BROKERS
380+
This information supplied herein is from sources we deem reliable. It is provided without any representation, warranty or guarantee, expressed or implied as to its accuracy. Prospective Buyer or Tenant should conduct an independent investigation and verification of all matters deemed to be material, including, but not limited to, statements of income and expenses. CONSULT YOUR ATTORNEY, ACCOUNTANT, OR OTHER PROFESSIONAL ADVISOR.
Contact
The information in this report was composed by the Kidder Mathews Research Group.
Jerry Holdner
Director of Research 949.557.5050 [email protected]
Eric Luhrs
Regional President, Brokerage Northern California / Nevada 408.970.9400 [email protected]
Designated Broker
Mark Read | LIC # 00572743
kiddermathews.com
signed the largest lease of the quarter, taking 117,889 s.f. at
Building 1 in the new Gateway 84 industrial park in Newark.
Thoughtspot leased 74,652 s.f. in Central Research Park in
Sunnyvale. Rounding out the top three leases, Miltenyi Biotec is
occupying 51,578 s.f. at 2825 N First Street in San Jose.
Net absorption for the first quarter finished at positive 343,956
s.f. Fremont provided the bulk of this change, registering
386,380 s.f. of positive net absorption. Santa Clara and
Sunnyvale recorded 66,877 s.f. and 53,878 s.f. of positive net
absorption each.
Currently, there are 428,084 s.f. of R&D properties under
construction in Silicon Valley. 3181 Porter in Palo Alto has
102,084 s.f. under development. This project is 100% preleased
to Jazz Pharmaceuticals. Intuitive Surgical is also constructing
326,000 s.f. in Sunnyvale for its own use. In addition, newly
renovated properties in North San Jose and Santa Clara are
delivering 568,606 s.f. of high-quality space. These construction
and renovation projects help satisfy the 11 million plus s.f. of
R&D requirements that Kidder Mathews tracks, signaling a
robust R&D demand.
Investment
Investor anticipation for R&D market growth remains strong as
sales volume reach 1.6 million s.f. this quarter. Hines completed
the largest transaction of the quarter, purchasing Oakmead
West in Santa Clara from Deutsche Asset Wealth Management.
Roche completed the next largest deal with the acquisition
of its Santa Clara offices from the joint venture of Rockpoint
Group and Presidio Investments in Santa Clara. Colony Capital
purchased a portfolio of six properties in Fremont from Dermody
Properties. This was part of a massive national 56 property
portfolio. Dermody last purchased the Fremont properties from
May 2017-April 2018 and nearly doubled their investment with
this recent sale. The quick turnaround helps point to the high
prospects of the Silicon Valley R&D market. Strong property
sales are anticipated as investors search for high quality
R&D properties.
Source: CoStar, Silicon Valley Business Journal