Two Silicon Valley buildings trade in strong R&D market

San Carlos-based WF Batton Management Co. has acquired Valley Research Center, an R&D campus in North San Jose, for $41.5 million, according to public records. The seller, Boston based-TA Realty, offloaded 130,000 square feet of space at $319 per square foot.

Valley Research Center comprises two 64,512-square-foot buildings, which were renovated in the last two years with a new lobby, collaborative work areas, fitness center and outdoor recreational areas. Harmonic Inc. fully occupies the building at 2590 Orchard Parkway and FIT Electronics (Foxconn) leases 26 percent of 2580 Orchard Parkway. CBRE, who represented the seller, has been seeking tenants for the building with vacancy.

The commercial and R&D market in Silicon Valley has remained stronger than the national average, according to a report by Colliers for the second quarter. The vacancy rate for office space fell to 10.1 percent from 10.6 percent quarter-over-quarter. There was 7.3 million square feet of office space under construction in Silicon Valley, and 66 percent of it had been pre-leased.

While the office market has remained strong, the R&D market is outperforming in two key metrics: vacancies and growth in asking rents. The vacancy rate in the sector has dropped to 6.3 percent from 8.3 percent a year ago, compared with office numbers between 10 and 11 percent during that time, according to Colliers. Asking rents for R&D buildings were up 10 percent year-over-year, while the cost to lease office space directly from a landlord was on par with rates seen a year ago, Colliers’ numbers show.

Silicon Valley’s R&D market has been minimally impacted by remote work trends, a key reason it’s recovering at a faster pace than the traditional office sector, the report said.

“Midway through 2022, the economy is facing headwinds amidst rising inflation, interest rate hikes and hiring slowdowns,” the report said. “However, with an unemployment rate of 1.9 percent, Silicon Valley’s economy continues to outperform the national average. Focusing on local commercial property trends, the office and R&D property markets continue to see positive net absorption.”

WF Batton isn’t the only investor securing office space in San Jose. Last month, three big office buildings in San Jose that are leased to tech firms were acquired by JJ&W Montague for $95 million.

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