Sunnyvale shines as bright spot in SV office market

Despite deal pipeline and single-digit vacancy, city faces economic headwinds

605 West Maude Avenue in San Jose
605 West Maude Avenue in San Jose (Google Maps)

While most of Silicon Valley’s office market has gone stagnant since the start of the year, Sunnyvale landlords have signed leases from a number of tech companies looking to consolidate in one location. 

For example, Apple leased a 150,000-square-foot building owned by Los Angeles-based Kilroy Realty. This comes six months after Apple added two other buildings in Sunnyvale totaling 213,000 square feet also owned by Kilroy. 

Hunter Properties and Sares Regis Group of Northern California are building two office buildings and nearly 500 homes in Downtown Sunnyvale.

Office sales activity has kept busy in the Silicon Valley hub. San Francisco-based Drawbridge Realty paid an estimated $185 million to buy a five-story office building in Downtown Sunnyvale leased to Uber. San Francisco-based PSAI Realty Partners has acquired the site where Japan-based tech company Fujitsu North America had operated in Sunnyvale for $31 million

The activity stems from tech companies wanting to consolidate around each other. 

“Sunnyvale has attracted tenants because of its abundant amenities and proximity to companies in the same or similar industries,” Mark Christierson from CBRE said. 

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When the large companies are located near each other, they have an opportunity to recruit talent as well. 

“When you look at which big companies are in Sunnyvale, it’s a long list — Apple, Google, Facebook,” Craig Petersen from Kidder Mathews said. “Amazon, LinkedIn, Walmart Labs all have a strong presence in Sunnyvale, Also, you have Nvidia and Intel just a short drive away in Santa Clara. Tesla is a short drive on the 280 to Palo Alto. If your office or R&D building is in Sunnyvale, you can pull employees from each of these big companies.”

Sunnyvale has the second largest rentable office inventory in Silicon Valley at 20 million square feet, second only to the 27 million square feet in San Jose. Sunnyvale has a 9.5 percent vacancy rate and 700,000 square feet of space available. In terms of price, Sunnyvale has a $6.65 asking rate which is third in Silicon Valley. 

While Sunnyvale has fared better than a lot of Silicon Valley, the city is not immune to economic headwinds and is experiencing a down market. 

“Sunnyvale is still very desirable for the aforementioned reasons, but there are very few tenants looking for big blocks of space that are currently available,” Christierson at CBRE said. “It is highly unlikely that demand will outpace supply until the economic conditions start to improve.”

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