/ Quarterly Office Market Report Silicon Valley Market Facts Class A Vacancy 8.8% Class B Vacancy $4.68 FS Class A Average Asking Rate $4.09 FS Class B Average Asking Rate Market Overview Kicking off with a strong start, the first quarter of the year measured yet another large occupancy gain in the Silicon Valley office market. Totaling more than 2.0 million square feet of net absorption in the first quarter, the Silicon Valley office market has now measured more than 26.7 million square feet of new occupancy since 2011, largely due to the expansion of major tech companies in the region. Contributing to the occupancy gain recorded in the first quarter was the completion of Apple s 777,000 square foot campus in Sunnyvale as well as 8x8 s lease of 162,557 square feet in Santa Clara at Coleman Highline to name just a few. Despite healthy occupancy gains measured over the years, the Silicon Valley s office market recorded an increase in vacancy during the first quarter. Total vacant space in the office market totaled 8.4 million square feet at the close of the quarter. This amount of space translates to a vacancy rate of 9.2 percent, up from the first quarter of when the vacancy rate stood at 7.8 percent. The large occupancy gains realized in the office market are largely due to new construction of major office campuses in which major tech firms such as Google, Apple, Facebook and Amazon have signed massive leases. Since the beginning of, more than 13.7 million square feet of new office construction has been added to the market. At the close of the first quarter 3.5 million square feet of off space was under construction in the Silicon Valley, 34.2 percent of this space remains available for lease. Average asking rates continued to increase throughout the Silicon Valley, ending the first quarter of the year at $4.29 per square foot, full service, up 11.9 percent from the first quarter of, and up 22.2 percent 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. The total amount of sublease space available in the Silicon Valley office market nearly doubled in, causing some concern about market fundamentals throughout the year. These spaces offer tenants attractive alternatives at discounted rates and will likely be reabsorbed in the coming quarters. Vacant sublease space accounts for 16.8 percent of total vacant space on the market. Going forward, the Silicon Valley office market is expected to remain strong throughout the year. Asking rates will continue to measure modest increases quarter over quarter as tenant demand remains high and new construction slows its pace. The Silicon Valley continues to have one of the healthiest job markets in the nation; at the close of February, the unemployment rate stood at only 2.9 percent, down 70 basis points from one year earlier.
/ Quarterly Office Market Report Market Snapshot Tenant demand remains strong in the Silicon Valley, kicking off the year with 2.8 million square feet of new leasing activity, up 34% from demand recorded during the fourth quarter of. Tenant demand is expected to remain strong throughout as a number of tenants requirements greater than 100,000 square feet remain unfufilled. Market Inventory Overall Vacancy Rate Net Absorption Under Construction Average Asking Rate 110,376,738 SF 9.2% (8.9%*) 2,091,560 SF 3,469,710 SF $4.29 FS ($4.14*) *Compared to previous quarter Pathline Park broke ground during the first quarter of. Three buildings totaling 360,000 square feet are leased to Synopsys. When complete, the project will total 1.47 million square feet in a ten building office park. 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 $3.96 $4.36 $4.45 Class A Class B $4.68 $4.09 14.0% $3.00 8.0% 8.8% $2.00 5.0% $1.00 2.0%
/ Quarterly Office Market Report Market By The Numbers SUBMARKET Total RBA (SF) Direct Vacant Space (SF) Sublet Vacant Space (SF) Vacancy Rate Net '17 '18 Absorp. (SF) Net Absorp. YTD (SF) Average Asking Rent Total Class A Class B Palo Alto 9,247,911 381,400 126,311 5.0% 5.5% -58,513-58,513 $7.71 $8.49 $7.53 Mountain View/ Los Altos 11,729,543 277,143 86,994 5.0% 3.1% 268,156 268,156 $6.61 $6.59 $6.52 Cupertino 7,023,365 51,936 39,568 1.6% 1.3% 17,816 17,816 $5.20 $4.20 $4.94 Campbell 2,148,611 468,923 19,428 16.6% 22.7% -16,891-16,891 $4.60 $5.10 $4.22 Los Gatos/Saratoga 1,872,062 20,538 23,831 2.6% 2.4% 9,857 9,857 $4.78 $5.00 $4.71 Sunnyvale 16,640,892 757,154 263,800 4.6% 6.1% 1,108,514 1,108,514 $4.88 $5.52 $4.11 Santa Clara 19,848,493 2,472,038 646,691 14.6% 15.7% 560,049 560,049 $4.12 $4.50 $3.83 San Jose 33,625,703 3,401,969 459,438 11.2% 11.5% 238,207 238,207 $4.00 $4.33 $3.74 Downtown San Jose 9,203,076 865,785 43,781 9.3% 9.9% -37,700-37,700 $4.24 $5.02 $3.68 Milpitas 4,280,009 405,870 39,909 9.5% 10.4% -40,687-40,687 $2.77 $ - $2.77 Fremont 3,960,149 232,701 16,006 10.8% 6.3% 5,052 5,052 $2.80 $ - $2.79 TOTAL 110,376,738 8,469,672 1,721,976 8.9% 9.2% 2,091,560 2,091,560 $4.29 $4.68 $4.09 Historical Net Absorption & Leasing Activity 2,500,000 Net Absorption Leasing Activity 3,500,000 2,000,000 2,800,000 Net Absorption 1,500,000 1,000,000 2,100,000 1,400,000 Leasing Activity 500,000 700,000 0 0
/ Quarterly Office Market Report Overall Office Historical Building '16 '16 '16 '17 '17 '17 '17 '18 Vacancy 6.9% 7.1% 7.7% 7.8% 8.6% 8.9% 9.3% 9.2% Direct Vacancy 6.2% 6.2% 6.7% 6.6% 6.8% 6.9% 7.8% 7.7% Sublease Vacancy 0.7% 0.9% 1.0% 1.2% 1.8% 2.0% 1.5% 1.6% Asking Rates (FS) $3.61 $3.62 $3.76 $3.84 $3.87 $3.94 $4.14 $4.29 Class A Office Historical Building '16 '16 '16 '17 '17 '17 '17 '18 Vacancy 9.0% 8.8% 9.5% 10.7% 11.8% 11.5% 12.5% Direct Vacancy 8.3% 8.0% 8.6% 8.8% 9.1% 8.5% 10.4% 9.6% Sublease Vacancy 0.6% 0.8% 0.8% 1.9% 2.8% 3.0% 2.1% 1.5% Asking Rates (FS) $4.45 $4.42 $4.45 $4.45 $4.60 $4.63 $4.61 $4.68 Class B Office Historical Building '16 '16 '16 '17 '17 '17 '17 '18 Vacancy 6.3% 6.6% 7.1% 6.6% 7.2% 7.7% 8.1% 8.8% Direct Vacancy 5.4% 5.4% 5.9% 5.6% 5.7% 6.0% 6.8% 7.0% Sublease Vacancy 0.9% 1.1% 1.2% 1.0% 1.5% 1.7% 1.4% 1.9% Asking Rates (FS) $3.37 $3.44 $3.62 $3.68 $3.67 $3.69 $3.91 $4.09 Significant Lease Transactions Tenant Building Submarket Square Feet Type Hewlett-Packard 6280 America Center Drive San Jose 225,000 Prelease Hitachi Data Systems 2535 Augustine Drive Santa Clara 222,529 New Lease Santa Clara County 353 W Julian Street San Jose 204,000 Prelease 8x8, Inc. 1125 Coleman Avenue Santa Clara 162,557 New Lease InvenSense, Inc. 1745 Technology Drive San Jose 139,336 Renewal Significant Sale Transactions Buyer Building Submarket Square Feet Price Per SF Vista Investment Group, LLC Vasona Technology Park Campbell 319,265 $355 Alexandria Real Estate Equities, Inc. Embarcadero Place Palo Alto 196,533 $692 Stockbridge Capital Group LLC 1001 N Shoreline Boulevard Mountain View 111,443 $1,525 TG USA Development Corp Bunkerhill Plaza Santa Clara 80,878 $507 American Realty Advisors 385 Sherman Avenue Palo Alto 67,974 $2,030 Under Construction Building Developer Submarket Square Feet % Leased Status Moffett Towers II Jay Paul Company Sunnyvale 701,326 100% Charleston East Google, Inc. Mountain View 595,000 100% 2019 700 Santana Federal Realty San Jose 284,000 0% 1625 Plymouth Avenue Broadreach Capital Mountain View 224,505 100% 353 W. Julian Street The Sobrato Organization San Jose 204,000 0% 2019 1050 Page Mill Avenue Sand Hill Property Company Palo Alto 150,000 100% 221 Mathilda Avenue Spear Street Capital Sunnyvale 150,000 0%
Northern California Regional Office Locations SILICON VALLEY - SAN JOSE 2880 Stevens Creek Blvd, Suite 200 San Jose, CA 95128 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 jennifer.vaux@ Managing Director: Randy Keller randy.keller@ SACRAMENTO - (CENTRAL VALLEY) 2020 W. El Camino Avenue, Suite 110 Sacramento, CA 95833 jennifer.vaux@ Managing Director: Tom Aguer tom.aguer@ 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.