SAN JOSE — Big tech companies that filled up large office buildings have helped to stabilize the Silicon Valley office market despite the coronavirus, but ongoing economic upheaval has caused sublease space to swell, a new report shows.

Preleases of a number of Silicon Valley office buildings by tech companies ensured that the sites were full when their construction was completed, according to a report for the third quarter from Colliers International, a commercial real estate firm.

Because the offices were completely leased even before construction began, that dynamic kept the buildings from being listed as empty and contributing to the vacancy rate in Silicon Valley, Colliers International states in a report covering the July-through-September quarter.

“Silicon Valley’s commercial property markets are continuing to adapt to a post-COVID-19 economy,” stated a report prepared by Lena Tutko, a senior research manager with Colliers International’s San Jose office.

Palo Alto, one of Silicon Valley’s major tech hubs, was the primary focus of major office leasing deals during the third quarter in the region, according to Colliers.

The largest office lease of the third quarter was a Guardant Health rental deal for 255,000 square feet in an office building at 3000 Hanover St. in Palo Alto.

Other major leasing deals for office space during the three-month period: Kodiak Sciences rented 155,500 square feet in two buildings at 1200 Page Mill Road and 1250 Page Mill Road in Palo Alto, while Trip Action rented a building totaling 99,700 square feet at 1501 Page Mill Road in Palo Alto.

Seven office properties came online in the third quarter and together added 983,300 square feet to Silicon Valley’s office inventory. Of that total, 81.4% of the square footage was pre-leased at the time the buildings were completed and made available to the tenants.

Among the tenants that pre-leased big office buildings prior to completion:

— Roku took two buildings in north San Jose at 1167 Coleman Ave. and 1173 Coleman Ave. that together total 358,400 square feet.

— Google pre-rented a new office building totaling 190,000 square feet at 600 Clyde Ave.

— JP Morgan’s tech unit, 119,000 square feet at 3223 Hanover St.

— VMWare, 85,400 square feet at 3380 Coyote Hill Road in Palo Alto.

— WilmerHale, 65,600 square feet at 2600 El Camino Real in Palo Alto.

Still, plenty of ailments afflict the Silicon Valley office market amid coronavirus-linked business shutdowns and re-thinking of office space needs on the part of tech companies that employ numerous workers who are operating from home.

“The sublease market continued to expand,” Colliers reported.

An estimated 8.6 million square feet of sublease office space is on the market in Silicon Valley. Sublease spaces account for 24.1% of all of the vacant office space in the South Bay, according to Colliers.

Overall office vacancies have risen while rents have drooped in Silicon Valley. Colliers defines Silicon Valley as Santa Clara County and Fremont.

The vacancy rate for Silicon Valley office buildings was 11.6%  in the third quarter ending in September, worse than the 10.9% office vacancy level for the second quarter that ended in June, Colliers reported.

Office rents averaged $5.09 a square foot on a monthly basis during the third quarter in Silicon Valley, lower than the second-quarter office rent of $5.24 a square foot.

Despite the uncertainties, developers continue to construct new office buildings in Silicon Valley.

“At the end of the third quarter of 2020, Colliers was tracking 10.8 million square feet of office product under construction,” the commercial real estate firm reported.


By Arlene Huff

Arlene Huff is the founding member of Golden State Online. Before that She was a general assignment reporter. A native Californian, she graduated from the University of California with a degree in medical anthropology and global health. She currently lives in Los Angeles.

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