While real estate markets across the country are reeling from high unemployment and an eight-year low, Silicon Valley is defying the national trend. Real estate in the technology-focused region is not only proving its resilience; it’s also showing considerable strength during what many are calling the worst housing market in U.S. history.
Thanks to its thriving tech industry, commercial real estate in the Silicon Valley has proven to be a bright spot in the local market. Jones Lang LaSalle reported that roughly 3.5 million square feet of commercial space was leased during the first quarter of this year alone and plans were announced for several significant new office leases—notably in Sunnyvale’s Moffett Towers, where sizable deals have been made with large corporate tenants, including Hewlett-Packard, Plaxo and Motorola.
“Right now there is a tremendous amount of leasing by large corporate users in the Silicon Valley,” added Randy Gabrielson, executive vice president of Cornish & Carey Commercial Newmark Knight Frank and manager of the company’s Palo Alto office. “We’re seeing a high concentration of technology companies that are using Palo Alto and the downtown area for recruitment tools, which is causing a spillover effect into Sunnyvale and the surrounding areas. This market is faring significantly better than other areas around the country, and we’re cautiously optimistic it will continue on this trend.”
As early-stage companies and mature businesses continue to converge in this technology-centered location, the race for space is heating up, bringing with it rising rents and steep leasing competition. Palo Alto, home of social media giant Facebook, has even reported leasing bids as high as 20% over the asking price, a result of the city’s rising demand and diminishing supply.
Among the many corporations that recently expanded or set up shop in the nation’s technology capital are Google, Dell, VMware, Facebook, Box.net and coupon website Groupon Inc., which recently made headlines when it leased a 40,000-square-foot space in Palo Alto. With a high demand for workers in social media and technology industries, job growth in the area has understandably taken a turn for the better, consequently contributing to the signs of strength in the residential real estate market.
With the area’s thriving local technology sector at the helm, Silicon Valley housing rents are experiencing a sharp increase from this time last year. Newly hired employees are finding there are far more potential renters than available rentals, leading to stiff competition and bidding wars among interested tenants. RealFacts reported that Sunnyvale currently holds the highest increase in Bay Area rents, rising 17.6% from last year to $1,731, a number reminiscent of the area’s rates at the height of the dot-com boom. Neighboring communities San Mateo and Mountain View also saw mounting rents, up 14.5% and 13.2% respectively, providing insight on why so many renters are now turning to the residential market with the intent to own.
In contrast to the nation’s average 3.6% decline in housing prices reported by S&P/Case-Shiller’s index of property values, the Silicon Valley is experiencing a 5.3% increase from this time last year, due largely in part to the aforementioned strength and growth of local tech companies, according to Coldwell Banker Residential. With recent IPOs like that of social media giant LinkedIn fueling the upsurge, the median home price in Palo Alto currently stands at $1.63 million, a 20% increase from this time last year revealed research company DataQuick. Similarly, Mountain View housing prices saw a 3.1% growth to $957,500 while Sunnyvale residences increased in price to $732,500, up 1.3% from February of this year per reports from Zillow.
“More IPOs come from Silicon Valley than anywhere else in the country, so it’s not surprising that employees at these tech companies have cash to buy homes, which creates steeper competition,” explained Gabrielson. As more firms go public, real estate prices are expected to continue to remain strong, especially in the wake of Facebook’s impending IPO, anticipated some time in early 2012.
While this technology-fueled real estate upsurge is expected to last into 2013, the results are visible across the Silicon Valley. In Sunnyvale, Fusion townhomes by O’Brien Homes are evidence of how the residential market is gaining strength. Since opening March 26 of this year, the townhome community has already booked 19 sales of townhomes ranging from $450,000 to $630,000.
“Right now we’re seeing an influx of buyers who are looking to invest in a home,” commented Jerry Dornseif, sales manager at Fusion. “Since rents in the area are high and still climbing, people are finding that they can get a better value when they buy their own home, and many of them have made their way here to Fusion. We’ve even sold homes before we had any models for buyers to view. If anything, I would say this is an indication of the rising economy here in the Silicon Valley.”