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Weakness in Rents Beginning to Show

March 17, 2008

Over the past 24 months, rental rates in the Silicon Valley, the Peninsula, and San Francisco have all seen a dramatic increases. Rental rates in some buildings have jumped nearly 75% over the past 24 months thanks to aggressive new owners looking to benefit from increased demand.

During the past two quarters however, that trend has seemed to have stalled in many buildings and submarkets, and in fact we are now beginning to see some reversal. One of the more notable and bold spec projects currently under construction is the Moffett Towers project being developed by the Jay Paul Companies. The project which sits at the intersection of 237 and 101 in Sunnyvale originally was being marketed at $3.25 NNN.

The economic realities facing Silicon Valley today along with a fairly packed pipeline of office space in Sunnyvale has now caused Jay Paul to lower asking rents for the project to $2.95 NNN hoping that some leases can be signed. There were some rumors swirling around in the past that Google had signed up for some space in the project but that now seems unlikely.

The market in Sunnyvale remains to be one which developers such as Menlo Equities, Sand Hill Property, RREEF, and Jay Paul, amongst others are together delivering well in excess of a million square feet Class A office product.

This translates into an excellent opportunity for tenants seeking Class A office space to pit landlords against eachother and to strike a deal at favorable terms.

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Categories: Commercial Development | Market Data
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