Silicon Valley office rents boom to record highs amid rebound

SAN JOSE — Silicon Valley office rents have surged to an all-time high, bolstered by sturdy leasing activity and hungry property investors, according to a new report released by commercial real estate firm Colliers.

LinkedIn, Tesla, Google, Apple, Amazon and Facebook app owner Meta were among the tech titans that completed major lease deals or property purchases in an ongoing quest to expand their Silicon Valley operations.

This activity is a welcome contrast to the dreary commercial real estate market that surfaced in Silicon Valley for much of 2020 and 2021 in the wake of wide-ranging shutdowns that government agencies imposed on businesses to combat the spread of the coronavirus.

“We’re seeing a big change from what was going on before,” said Lena Tutko, research director for Colliers.

Gathering areas and office buildings in the Catalyst campus at the corner of West Maude Avenue and North Pastoria Avenue in Sunnyvale, concept. LinkedIn has leased this campus and bought an adjacent property for an expansion in Sunnyvale. (Harvest Properties, Invesco)

Despite ongoing uncertainties arising from the omicron variant of the coronavirus, Silicon Valley tech giants appear to have ramped up their efforts to scout for and obtain big office spaces to lease or buy.

“A lot of big tech companies came off the sidelines and made deals in the fourth quarter,” Tutko said.

Buoyed by the activity, average office rents in Silicon Valley surged to an all-time during the final three months of 2021, according to a preview snapshot of a quarterly report that Colliers provided to this news organization.

Silicon Valley office rents averaged $5.42 a square foot per month during the fourth quarter of 2021, or the October-through-December period, which Tutko and Colliers reported was the highest average rent ever achieved in the region.

Fourth-quarter of 2021 office rents in Silicon Valley — which Colliers defines as the combination of Santa Clara County and Fremont — are now 4.8% higher than they were during the fourth quarter of 2020, the Colliers statistics show.

Office buildings in Coleman Highline mixed-use complex in north San Jose. (Coleman Highline, Hunter Properties)

During the fourth quarter of 2020, Silicon Valley office rents were averaging $5.17 a square foot per month. Monthly rents fell even further to $5.15 a square foot during the first quarter of 2021.

Silicon Valley office rents at the end of 2020 were 5.2% higher than lows that emerged in the first quarter of 2021.

Among the significant property deals during the final three months of 2021:

— Meta, owner of the Facebook app, leased 719,000 square feet in a north Sunnyvale campus located near the corner of Crossman Avenue and Caribbean Drive that also fronts on East Java Drive.

— LinkedIn paid $122.8 million in cash for two old office buildings at 810, 820 and 870 W. Maude Ave. in Sunnyvale. These buildings are slated to be bulldozed and replaced with a big tech campus. LinkedIn also leased an adjacent modern office building at 684 W. Maude Ave. totaling 194,600 square feet.

— Tesla leased 325,000 square feet at 1501 Page Mill Road in Palo Alto.

— Amazon paid $123 million for a 29-acre Milpitas site with several office and research buildings near the corner of South Milpitas Boulevard and Gibraltar Drive.

— Google paid $73.5 million for a two-story building with 60,000 square feet that sits on 4.3 acres at 1665 Charleston Road in Mountain View. Google is also constructing two huge new Mountain View campuses nearby.

— Exeter Property Group paid $192 million for The Assembly at First campus office and research campus that consists of several parcels totaling 27 acres near the corner of North First Street and Headquarters Way in north San Jose.

— In the quarter’s biggest property purchase, valued at $780 million, London-based AGC Equity Partners bought three buildings in the Coleman Highline mixed-use tech campus on Coleman Avenue in north San Jose.

One gloomy part of the Colliers report: Office vacancies for direct leases between a property owner and a tenant remain stuck in double digits and averaged 11.3% during the fourth quarter.

That was a slight improvement from the 11.4% direct office vacancy for the third quarter of 2021 but far above the 9.5% direct vacancy rate for office space during the fourth quarter of 2020.

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