Market Facts 8.1% Vacancy 7.9% Vacancy $4.60 FS Average Asking Rate $4.20 FS Average Asking Rate Market Overview The office market closed the books on and it was another record year. Net absorption recorded during the fourth quarter totaled 459,698 square feet, up from the quarterly gains measured in the third quarter. This brought the total occupancy gain for the year to over 4.6 million square feet, down from the total net absorption recorded in, but up from that of. Total leasing activity measured in the fourth quarter totaled over 1.3 million square feet, down slightly from the previous quarter s total of 2.9 million square feet. The fourth quarter was headlined with several significant transactions over 100,000 square feet, a sign that the appetite of large campus users shows no signs of slowing. Top deals signed during the quarter were ProofPoint preleasing 242,550 square feet in two buildings at Pathline Park in Sunnyvale where The Irvine Company is in the beginning phases of construction on the 1.9 million square foot office development. Google inked a deal for 151,998 square feet at 620 National, which completed construction in but has remained vacant and unleased up until this quarter. Overall vacancy in the office market dipped to 7.6% in the fourth quarter, down from 7.9% at the close of and 9.1% measure at the beginning of the year. Total vacant space measured just over 8.4 million square feet at the close of the fourth quarter, with sublease space accounting for 19% of total available supply. The total amount of office space under construction has slowed in recent quarters as tenants continue to scoop up any remaining space. As came to a close, 4.7 million square feet of off space was under construction in the, with nearly 75% of it already committed to. Average asking rates continue to climb in the Silicon Valley, totaling $4.44 per square foot, full service at the close of the fourth quarter, up 7.3% from the fourth quarter of, and up 18.3% from the same period of. Palo Alto and Mountain View continue to command the highest rents in Silicon Valley, especially in their downtown markets due to high demand and a severe lack of supply. Going forward, the office market is expected to remain strong as tenant demand continues to thrive. Asking rates may begin to level off as new sublease space hits the market and construction slows its pace. The continues to have one of the healthiest job markets in the nation; at the close of November, the unemployment rate stood at only 2.4%, down 40 basis points from one year earlier and the same rate measured during December 2000 as the dot.com era came to an end.
Market Snapshot Tenant demand is expected to remain strong going into 2019 as several tenant requirements greater than 100,000 square feet remain unfulfilled. At the close of, more than 10.0 million square feet of active tenant requirements were being tracked in the market, an indication that demand will continue to outpace supply in the office market. Market Inventory Overall Vacancy Rate Net Absorption Under Construction Average Asking Rate 111,745,319 SF 7.6% (7.9%*) 459,698 SF 4,780,996 SF $4.44 FS ($4.41*) *Compared to previous quarter ProofPoint signed a long-term lease for 242,550 square feet of office space at The Irvine Company's Pathline Park in Sunnyvale during the fourth quarter of. The project is expected to deliver by 2019. Direct Vacant Space in millions of square feet Fremont Milpitas Downtown San Jose San Jose Santa Clara Sunnyvale Los Gatos/ Saratoga Campbell Cupertino Mountain View/ Los Altos Palo Alto 0.0 1.0 2.0 3.0 4.0 Millions Historical Asking Rental Rate (FSG) Historical Vacancy $5.00 $4.00 $4.07 $4.40 $4.59 $4.60 $4.20 14.0% 11.0% 8.5% $3.00 8.0% 8.0% $2.00 5.0% $1.00 2.0%
Market By The Numbers SUBMARKET Total RBA (SF) Direct Vacant Space (SF) Sublet Vacant Space (SF) Vacancy Rate Net '18 '18 Absorp. (SF) Net Absorp. YTD (SF) Average Asking Rent Total Palo Alto 9,961,324 296,936 174,265 6.3% 4.7% 187,233 182,088 $7.47 $8.71 $7.66 Mountain View/ Los Altos 11,506,789 111,580 76,741 3.0% 1.6% 257,749 446,800 $6.95 $7.53 $6.48 Cupertino 7,023,365 33,636 0 1.3% 0.5% -6,298 75,684 $5.45 NA $4.93 Campbell 2,142,681 590,450 7,666 22.3% 27.9% -17,027-126,656 $4.75 $5.21 $4.26 Los Gatos/Saratoga 1,897,025 23,666 25,140 2.4% 2.6% -9,973 5,420 $4.31 $5.00 $4.06 Sunnyvale 16,819,721 702,202 47,519 3.1% 4.5% -252,482 1,411,796 $5.94 $6.67 $4.16 Santa Clara 19,779,507 1,547,587 703,013 15.5% 11.4% 92,580 1,398,174 $4.14 $4.57 $3.78 San Jose 34,374,703 3,095,767 590,687 12.6% 10.7% 31,867 969,257 $4.02 $4.17 $3.91 Downtown San Jose 9,887,300 742,223 45,921 9.0% 8.0% 19,863 72,811 $4.55 $5.27 $3.95 Milpitas 4,280,383 299,248 2,907 10.4% 7.1% 177,445 102,937 $2.75 NA $2.75 Fremont 3,959,821 91,213 21,589 6.5% 2.8% -1,396 145,261 $2.97 NA $2.96 TOTAL 111,745,319 6,792,285 1,649,527 9.1% 7.6% 459,698 4,610,761 $4.44 $4.60 $4.20 Historical Net Absorption & Leasing Activity 3,000,000 Net Absorption Leasing Activity 6,000,000 2,500,000 5,000,000 Net Absorption 2,000,000 1,500,000 1,000,000 4,000,000 3,000,000 2,000,000 Leasing Activity 500,000 1,000,000 0 2014 0
Overall Office Historical Building '17 '17 '17 '17 '18 '18 '18 '18 Vacancy 7.7% 8.5% 8.8% 9.2% 9.1% 8.0% 7.9% 7.6% Direct Vacancy 6.5% 6.7% 6.8% 7.7% 7.5% 6.3% 6.4% 6.1% Sublease Vacancy 1.2% 1.8% 2.0% 1.5% 1.6% 1.6% 1.5% 1.5% Asking Rates (FS) $3.83 $3.86 $3.93 $4.14 $4.29 $4.34 $4.41 $4.44 Office Historical Building '17 '17 '17 '17 '18 '18 '18 '18 Vacancy 11.3% 12.4% 12.1% 12.9% 10.9% 8.5% 8.0% 8.1% Direct Vacancy 9.4% 9.6% 9.1% 10.8% 9.5% 7.1% 7.0% 5.9% Sublease Vacancy 1.9% 2.8% 3.0% 2.1% 1.4% 1.4% 1.1% 2.2% Asking Rates (FS) $4.44 $4.58 $4.60 $4.59 $4.54 $4.61 $4.73 $4.60 Office Historical Building '17 '17 '17 '17 '18 '18 '18 '18 Vacancy 6.2% 6.8% 7.2% 7.7% 8.8% 8.3% 8.6% 7.9% Direct Vacancy 5.2% 5.3% 5.6% 6.3% 6.8% 6.3% 6.5% 6.7% Sublease Vacancy 1.0% 1.4% 1.7% 1.4% 2.0% 2.1% 2.0% 1.2% Asking Rates (FS) $3.69 $3.67 $3.69 $3.93 $4.15 $4.11 $4.12 $4.20 Significant Lease Transactions Tenant Building Submarket Square Feet Type ProofPoint, Inc. Pathline Park Sunnyvale 242,550 Prelease Alibaba.com 525 Almanor Avenue Sunnyvale 166,300 Expansion/Renewal Google 620 National Avenue Mountain View 151,998 Direct Lease WePay 3223 Hannover Drive Palo Alto 119,700 Direct Lease Flextronics 6201 America Center Drive San Jose 119,058 Renewal Significant Sale Transactions Buyer Building Submarket Square Feet Price Per SF Google Shoreline Technology Center Mountain View 773,400 $1,293 Sand Hill Property Company 3000 Hannover Street Palo Alto 546,000 $696 Google 4300-4400 North First Street San Jose 376,664 $410 Intercontinental Real Estate Corp. 2811 Orchard Parkway San Jose 84,696 $413 Toll Brothers, Inc. 370 San Aleso Avenue Sunnyvale 54,024 $496 Under Construction Avison Young Transaction Building Developer Submarket Square Feet % Leased Status Moffett Towers II Jay Paul Company Sunnyvale 701,326 100% 2019 Charleston East Google, Inc. Mountain View 595,000 100% 2019 Pathline Park The Irvine Company Sunnyvale 560,000 56% 2019 700 Santana Federal Realty San Jose 284,000 100% 2019 353 W. Julian Street The Sobrato Organization San Jose 204,000 100% 2019 1050 Page Mill Avenue Sand Hill Property Company Palo Alto 150,000 100% 2019 221 Mathilda Avenue Spear Street Capital Sunnyvale 150,000 100% 2019
Northern California Regional Office Locations SILICON VALLEY - SAN JOSE 2880 Stevens Creek Blvd, Suite 200 San Jose, CA 95128 Research Contact: Jennifer Vaux jennifer.vaux@ Managing Director: Gregg von Thaden gregg.vonthaden@ OAKLAND - (EAST BAY) 1111 Broadway, Suite 1650 Oakland, CA 94607 Research Contact: Paul Magoria paul.magoria@ Managing Director: Charlie Allen charlie.allen@ SAN FRANCISCO 44 Montgomery Street, 3300 San Francisco, CA 94104 Research Contact: Patrick McKenzie patrick.mckenzie.com Managing Director: Nick Slonek nick.slonek@ SAN MATEO - (MID-PENINSULA) 950 Tower Lane, Suite 120 Foster City, CA 94404 Research Contact: Ava Jensen jennifer.vaux@ Managing Director: Randy Keller randy.keller@ SACRAMENTO - (CENTRAL VALLEY) 2020 W. El Camino Avenue, Suite 110 Sacramento, CA 95833 Research Contact: Ava Jensen jennifer.vaux@ Managing Director: Tom Aguer tom.aguer@ 2019 Avison Young - Northen California, Ltd. All rights reserved. E. & O.E.: The information contained herein was obtained from sources which we deem reliable and, while thought to be correct, is not guaranteed by Avison Young.