Silicon Valley Begins To Crack Visibly

Tyler Durden's picture

Authored by Wolf Richter via WolfStreet.com,

Chilling photos of for-lease signs lining the Great America Parkway 

There are parts of Silicon Valley where commercial real estate is still hanging on, and there are parts where it has let go.

In Santa Clara, it has let go. Overall availability of office space in Santa Clara was nearly 19% in the first quarter, according to Savills Studley, up from 14% a year ago. Only two other areas in Silicon Valley – Milpitas and North San Jose – show greater availability at respectively 23% and a harrowing 30%.

The availability problem becomes very real along the Great America Parkway, between Highway 237 and Highway 101. It’s near Levi’s Stadium. Nearby, Yahoo owned 49 acres of land that it acquired in 2006 and on which it had planned to build its new headquarters. It tore down the buildings on it and got the project approved for 3 million square feet of office space. It scuttled these plans in 2014 and turned the land into a parking lot for Levi’s Stadium. In April 2016, Yahoo sold the property for $250 million to LeEco, a Chinese company that had surged out of nowhere.

LeEco was going to get into nearly everything, including electric cars in the US. It was going to build its global headquarters on it and hire 12,000 people. Then came reality. Earlier this year, LeEco in turn scuttled those plans and pulled back from the US, claiming that it had run into a cash crunch. It has since been trying to sell the property. There will be a buyer eventually, as always, but maybe not at $250 million.

Turns out, that corridor along the Great America Parkway is drowning in office space that is for lease.

“A growing Commercial Real Estate disaster” – that’s what Michael, who has been to this area on a regular basis since 2010, calls it.

 

“This should be a thriving area given it is directly in the path to Levi stadium,” he said.

 

“I have been seeing an incredible amount of construction here and everywhere over the last few years. However in the past year, I am seeing a considerable amount of for-lease signs with new construction projects unabated.”

Here is the stretch of the Great America Parkway between Highway 237 and Highway 101:

And here are the for-lease signs Michael photographed in front of office buildings along the Parkway.

The building below used to sport a Dell logo. The logo disappeared, and now the whole building appears to be under renovation.

The building across the street now has the Dell logo:

And more space for lease.

“Santa Clara and Sunnyvale had some of the most pleasant industrial commercial buildings that blended well with curved roads and lots of trees,” Michael says.

“Now most of these are being leveled for these glass multi story monsters.”

“There are at least a million square feet of unoccupied commercial real estate on a single street.”

“Irrational construction?”

But it’s not just Santa Clara. According to Savills Studley’s report on the Silicon Valley office sector in Q1, overall availability in Silicon Valley rose to 16% and availability of Class A office buildings jumped nearly four points year-over-year to 20% in Q1.

In some areas, availability is low. But in others, such as in Santa Clara and San Jose, the opposite is the case. These two cities account for nearly two-thirds of the available space for lease in Silicon Valley. And there is a lot of construction, but only about half of it has been pre-leased.

Availability in some key places:

  • Palo Alto:  6%
  • Menlo Park:  12%
  • Mountain View/Los Altos:  12%
  • Downtown San Jose:  17%
  • Santa Clara:  19%
  • Milpitas:  23%
  • North San Jose:  30%

Yet, overall asking rents rose 6% year-over-year. Class B and C asking rents were about flat, but class A asking rents spiked nearly 15%. Even in Santa Clara – despite the vacant offices cluttering up the landscape – overall asking rents rose 5% year-over-year.

But these are asking rents, not actual deals, where tenants negotiated big concessions and lower rents. And these deals have slowed to a crawl…

Leasing activity peaked in mid-2015 at 12 million square feet on a trailing four-quarters basis. Leasing activity has since plunged 50% to just 5.8 msf for the trailing four-quarters, even as new supply keeps piling on the market.

“It is open to debate, though, whether the region is gearing up for more growth or if the rally is winding down,” the report mused.

And nationally, the Commercial Real Estate boom-and-bust cycle has turned. Read…  Next Asset Bubble Cracks: It’s so Big even the Fed is Fretting

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christiangustafson's picture

Web 3.0 coming soon!

Hey, Wolf!  Nice job on this piece!

Lordflin's picture

Imagine how bad this would be if we didn't have a managed economy...

bamawatson's picture

techtards; all non-coders are usless bloodsucking leaches

christiangustafson's picture

But someone's got to pilot JIRA.

Cloud tech is hella-deflationary, by the way.

Creepy_Azz_Crackaah's picture

Those buildings are going to make some NICE Amazon shipping warehouses.

Manthong's picture

 

I know of a great big space that is probably still available across the bridge in Fremont.

You might need to clean up a trainload of broken glass tubes before moving in though.

It was about a quarter of Obama’s $2 Billion green energy scam and you, your kids and grandkids get to pay for it.

http://www.sfgate.com/business/article/Solyndra-Energy-superstar-s-rapid-rise-and-fall-2309328.php

 

BTW, I read somewhere that the Solyndra guys made something like 23 trips to the White House.

Stuck on Zero's picture

Most high-tech left Silicon Valley years ago for overseas. What's left is social media, hype, and failing startups.

Arnold's picture

I spent my time in that corridor during the Fairchild Semi Conductor/ Schlumburger transition days.

Lots of dead buildings in those days too.
You needed a city permit to cut down a tree greater than 6" at the base.
Prolly today you need a daily use permit to cut the grass.

WTFRLY's picture

Fuckin Make America Great Again!

stacking12321's picture

i was renting a 10,000 sq ft warehouse in north san jose 2014-2015, for .70 per sq ft

in 2016 when i needed to lease a new place, i couldnt find anything under 1.20 per sq ft, almsot double

i would love to see rents drop back down by 50% to what they were a few years ago

divingengineer's picture

That woul put rents at about 2010 level.

Braindonor1's picture

And your point is?

Please explain to us how it is that requiring a permit to prevent would be clearcutters from cutting down mature trees results in empty buildings.

How about malinvestment based upon an oversupply of cheap money made available by the banks through the fractional reserve system?

kommissar's picture

yep.  all hose jobs are in asia now:  2 fishheads & a bowl of rice gets a lot of work done there.  

atmel had a beautiful ($$$$) ofice a stones throw from sjc.  REALLY smart well paid folks worked there.  they got bought, shut down, carved up, and thrown to the wolves.  very sad.  no more smart r&d happening there, that's for sure!

divingengineer's picture

Right across the highway is the former Theranos labs at Pacific Research Park.

Déjà view's picture

Silicon Valley...could use some new 'implants'...

ramon_espino's picture

I'm making over $7k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.jobproplan.com

Manthong's picture

 

I'm making over $25k a month working part time cooking up meth in a shuttered storefront adjacent to a day care school . I kept hearing other people tell me how much money they can make with drugs so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do... www.spamcuck.com

land_of_the_few's picture

Way they're going it will be butt-cheek ones.

TheRideNeverEnds's picture

Or convert them to 500sqft studio apartments with communal showers and bathrooms. Price em at $300/sqft and watch them sell out in three hours to be rented double occupancy to tech slaves from India.

VD's picture

 i'm seeing lots of for lease signs on madison ave. here in manhattan.

Megaton Jim's picture

Good! Fuck those Jew landlords in NYC!

Diatom's picture

I dont know what the fuck  is JIRA...

But i know what is an amazing piece of ass...

 

canisdirus's picture

JIRA and all software like it is a scourge. They create zombies that cannot think or do anything that doesn't come as a ticket with a completely described action...

Cloud may be deflationary on one side, but it creates an ever larger demand for developers and DevOps. Interestingly, it also props up startups; unlike the dot-com boom, where these companies spent a lot of that hot VC money on physical assets that could be auctioned off, all they own now is some IP of questionable value (most could be replaced in about 6 months by a decent team for far less than they would be trying to get when liquidating). Most IP built during the dot-com boom was discarded because it had no market value. Lastly, it doesn't touch domestic IT at all, although there are a lot of consulting companies that have sprung up around some software solutions that allow for managing hundreds of desktops remotely from a central location.

It'll be interesting to see how it all shakes out, but cloud hosting is mostly negative for colo facilities and various companies that have invested a large amount of money in datacenters.

MisterMousePotato's picture

"[T]here are a lot of consulting companies that have sprung up around some software solutions that allow for managing hundreds of desktops remotely from a central location."

You have got to be fucking kidding me.

Uh ... TightVNC and a dozen others? (To say nothing of Microsoft's remote desktop service, which I know nothing about.)

Free.

Available for - what? - 20 years now? Or more?

Robust. Mature. Available as water.

But we've got consulting firms springing up to bring us remote desktop services?

canisdirus's picture

You have no clue what I'm talking about. How quaint.

There's nothing particularly new under the sun about remote access, but the tools for managing desktops and providing IT services have evolved. Go ahead, look for jobs in IT in major metro areas. The bottom 90% has been replaced by outsourcing. Almost every listing is from such a company and they pounce with marketing if you are looking to hire someone. Only companies with 100+ people or highly specialized needs bring IT in house anymore, the rest contract with a provider for less. I've managed such contractors/contracts. They all use one of an assortment of software suites that makes remote management of large numbers of desktops fairly trivial.

I know people in this industry. Quite a few, in fact. On the other hand, I can't think of any FTE IT people in my circles.

in4mayshun's picture

"All non-coders are useless"???
Next time your company's VOIP phone system or Firewall crashes, call a plumber.

divingengineer's picture

Next time you need to build a new.....anything, call a stock broker.

land_of_the_few's picture

Or call the person the money actually belongs to :D

bamawatson's picture

techtards

any tech worker who can code is a useless blod-sucking-leach

bamawatson's picture

techtards; useless liberal whining coddled impotent losers

(each comment referenced NON-coders; i see one in  which i obviously omitted NON; i respect coders; hell i learned Cobol n Fortan  when tricky dixon was prez)

((poor poor ole blueballs; been awhile since you had any pussy huh sport.... if ever))

Keyser's picture

Everything has to be black and white in a polarized society... Congrats for taking the bait... 

divingengineer's picture

FORTRAN, the command line shit. And PASCAL.

piliage's picture

Ah... the joys of PASCAL. Pity that the youth of today will never experience computer science as seen through a Burroughs mainframe terminal at 2:40am.

RUNTIME ERROR

RUNTIME ERROR

RUNTIME ERROR

RUNTIME ERROR

RUNTIME ERROR

RUNTIME ERROR

RUNTIME ERROR

RUNTIME ERROR

ENDLINE ERROR

land_of_the_few's picture

As far as I know Pascal is used to train people to code when you don't want to scare them unnecessarily with C.

But yeah, it would still scare people mightily that code Java or VB.

Seems they are training the very young Yoof with Scratch and Python these days if they want to get started early.

canisdirus's picture

Pascal was a great structured programming language. I believe that it also permanently damages the minds of programmers - I haven't written a line of it since about 1996, yet I still write my code upside-down and avoid prototypes in libraries.

moneybots's picture

The Burroughs B205's wound up in the Jupiter 2 and the Bat Cave. I give Burroughs props for that one.

chumbawamba's picture

Microsoft made it fashionable to use an entire 32-bit word as a flag.

If Bill Gates was never born, we wouldn't need 1/1000th the memory and hard drive space necessary today to run a simple app.

Fuck you, Bill.  You always sucked.  I wish I would've killed you when I had the chance.

I am Chumbawamba.

SilverRoofer's picture

I wish a big 12.0 quake would bury that place under 2o feet of sea water

stacking12321's picture

i think it should happen to you, and to your family first, so that you can think about whether it really is something to wish on others.

nmewn's picture

Finally! Peak Geekville!

The Ninth Circus should immediately issue a court order to impound these properties and make them illegal alien shelters in the Sanctuary State!

Couldn't happen to a nicer bunch of "folks" ;-)

CJgipper's picture

It's not web.  It's ALL commercial space.

 

Go to Nashville.  They're building skyscraper office buildings next to buildings with "commercial space for lease" signs all over them.  It wouldn't surprise me if 25% or more of the total space were available in the area.

nmewn's picture

Yeah but tech-nerds don't like "dirty uneducated hillbillies" ;-)

Hulk's picture

MAybe so, but eveyone enjoys a toothless blowjob every  now and then !!!

New_Meat's picture

"I'll keep an eye out for you, sonny."

e_goldstein's picture

That is how the mysterious whistling blowjob is performed.