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Q3 2009 Update: Silicon Valley Rents, Vacancy Rate, and Unemployment Numbers

October 1, 2009

It’s been about two quarters since we last updated our chart for Silicon Valley office rents, vacancy rates, and unemployment. The latest numbers indicate what we anticipated, and that is unemployment numbers would continue to have a significant impact on rents and vacancy rates. What’s more is that the unemployment numbers continue to be at historic highs (though the rate of the increases is tempering).

As a result, we anticipate vacancy rates and rents to continue to weaken over the next 1-2 quarters, but the rate of decline should begin to moderate. The risk of course is something we’ve discussed before, and that is commercial defaults lead to new owners moving in with a low basis and further undercutting the market. One could argue the recent Asilomar deal to acquire Dixon Landing/Britannia Business Park is an example of this.

Something else which should also be kept in mind when looking at these numbers is that a large portion of the vacancy can be attributed to new projects, many of which areĀ concentratedĀ in Sunnyvale and San Jose. The reality is that the rent on these projects – and tenant improvement costs needed to get them to occupancy – are so much above market that a super majority of tenants in the market won’t or can’t even consider these projects, thereby negating their true effect on the market. Nonetheless, at some point the properties will be able to do market rate deals (either through foreclosure, or owners buying back their own debt at a discount), and at that point their effect will be a factor.

Q32009 MarketUpdate 449x400 Q3 2009 Update: Silicon Valley Rents, Vacancy Rate, and Unemployment Numbers

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