Interesting discussion topic, but I only partially agree. While PA rents may be getting to high levels, the majority of the Peninsula has a long ways to go. In a “normal” market (is there such a thing on the Peninsula?), PA rents might be 20-30% higher than say Redwood Shores or the 92 Corridor, but today they are nearly double. When you see $4 NNN rents on the rest of the Peninsula we may have hit a peak, but we still have double digit vacancies in most submarkets to the north of PA so rents have been slower to recover there. Lead by tech, and not Eurpoe, the current rent spike has plenty of legs under it in my view, maybe just not in PA.

And discussion is what I was going for! Anyone else want to stick their neck out on the subject?

My two cents…. Demand is still driving rates up. It is my job to argue property tax valuations for companies who buy, lease or build in the Bay Area. I can only speak from a valuation stand point, values are beginning to creep up again after a 2 – 3 year lag. I am seeing Palo Alto valuation rates going way past $500 sq/ft with regard to assessor valuations. Some as hi as $700 sq/ft.

With regard to investors, I can’t imagine they can sustain these levels of investment without seeing some up side that I sure don’t understand.

I tend to agree that there will be a break in the action. The end of last year and the beginning of this year there tended to be a grab for properties (call it a flight to quality with expansion) however I feel that the volatility in the financial markets is curbing peoples appetite for growth. Besides the major players (Google, Apple, Motorola, Facebook, Sony, Dell, Polycom, etc.) and social networking companies a lot of the smaller companies that service and supply these big companies are stalling their efforts on growth. I hope I am wrong but this is what I am seeing in the CRE market. Furthermore, we are seeing larger investment deals coming into play that are very reminiscent of 2006. And that is a scary thought….unless you got Apple on the hook!

I cannot speak to your market but as a nation, I agree.

Tim makes some good points- if we’re talking about Palo Alto, the important thing to look at is the SPREAD between PA and the broader market. I just don’t see $4 NNN rents up the Peninsula coming soon, and that is probably what it would take to make current PA rents sustainable in my opinion.

Mtn View is probably a tad overheated, too, but I do think that the delta between MV and PA rents will stay lower than it has been historically.

I tend to think we are in for more hard times. Sat down with a real estate analyst from UBS New York a couple weeks ago and his charts do not look good.

I can’t help but believe we are in for a rough bout of stagflation… there simply isn’t anything on the front side to pull out of the mess the FED has created. America needs to remember how to build the best Widget, not WordPress widgets, but real ones.

@Gene Urban
Problem is other countries build those widgets at a fraction of the price American workers do and then the same American workers have grown accustomed to buying those widgets for ultra cheap prices at Walmart. No party, American or otherwise wants to go back to the days of expensive widgets.

Very true Joe, but wow it’s frustrating. I hate to see the Walmarts of the world win the battle – you’re right though, it seems unavoidable.

$6-7 NNN by next year, for sure.

A year later this is good advice. However I think Palo Alto will always be a great place to own.

Palo Alto is still the safest bet in my opinion. True not every startup makes it but there is no shortage of Investment capital in that area. As long as that remains the property values will continue to do well.

Chris

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