Silicon Valley 'Bloodbath' Leaves Office Buildings Empty
BusinessWeek reports: Over 43 million square feet of office space stands vacant in California's Silicon Valley, adding to the technology hub's biggest property glut since the dot-com bust.
Silicon Valley is beset by the biggest office property glut since the dot-com bust, leaving the U.S. technology hub with empty high-rises and office parks that make it impossible for landlords to sustain average rents.
More than 43 million square feet (4 million square meters) — the equivalent of 15 Empire State Buildings — stood vacant at the end of the third quarter, the most in almost five years, according to CB Richard Ellis Group Inc. San Jose, Sunnyvale and Palo Alto have 11 empty office buildings with about 3 million square feet of the best quality space.
"There is a bubble bursting in much the same way as the residential market burst," said Jon Haveman, principal at Beacon Economics, a consulting firm in San Rafael, California. "None of those towers will fill up anytime soon."
Commercial property foreclosures will at least double in 2010 and job growth won't return for two years after that, held back by U.S. consumers who are saving more and "getting back in line with sustainable spending habits," Haveman said.
Bloated inventory and tight lending standards will curtail office construction in pockets around California for "the next several years," said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles Economic Development Corp.
"That means there won't be jobs for construction workers and hence no tax revenue from sales of construction materials," Kyser said. "It is the ultimate domino effect."
About 21% of Silicon Valley's Class A office space is vacant, as is 20% of low-rise so-called flex or research and development space for offices or manufacturing, CB Richard Ellis said.
More than 4 million square feet of speculative office projects opened since 2007 as developers anticipated that companies would move from flex space into new towers, according to CB Richard Ellis. Empty Class A offices totaled 13 million square feet and vacant flex space was 30.5 million square feet as of Oct. 1, the Los Angeles-based broker said.
"Many of these assets have lost half their value," said Dan Fasulo, managing director of New York-based research firm Real Capital Analytics Inc. "That's a bloodbath."
View the full article on BusinessWeek: Silicon Valley 'Bloodbath' Leaves Office Buildings Empty
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Posted by: Matthew Stone