Tour Provides Perspective on Looming Silicon Valley Dynamic
By Wayne Mascia
On a drizzly day in mid-October, all the brokers in the office bundled onto a bus for a tour of all the new commercial projects under construction and sites planned to be initiated in 2008 and beyond. Intended as more than a simple inventory update, the tour was to give us the collective opportunity to gauge and analyze the trends looming on the near-term horizon and their impact on the landscape and economies of the region.
As confirmed by a view from just about any upper-floor window in the Valley and certainly from our tour bus windows, numerous high-end office projects of three, four and five stories are now under construction and will add 2.1 million square feet of new space in 2008 alone. Spearheaded by developers Jay Paul, Menlo Equities, California Bavarian Construction and others, such projects signal the new building boom is more than a rumor. Among the trends in a market already mature is the fact that much of the new construction is taking place where previous facilities built in the late 1970s and early '80s must be demolished to make way for campuses of two- and three-story buildings. Led by veteran Sobrato Development Companies with 516,000 square feet in Santa Clara and Sunnyvale Town Center, such new facilities are supplementing the previous tilt-ups that characterized these markets in the past.
Even more dramatic, Tishman-Speyer, Hunter-Storm and others are eyeing eight office towers totaling 400,000 to 800,000 square feet in Santa Clara's North First Street area. Such projects not only contain the of- fice towers that are the symbols of the new development dynamic, but also major hotels (in this case featuring 230 rooms) and retail space on the same site.
When it comes to such mixed-use development, few signal the new dynamic more than the area for the city of San Jose's "Vision 2030" in the city's North First Street corridor. A truly bold project on approximately 230 acres, loosely bounded by North First Street, and highways 237 and 101, it envisions 32,000 homes and apartments, retail, schools, entertainment and services within a short distance of the facilities in which the inhabitants work. Like comparable visionary urban projects across the country, Vision 2030 will be characterized by higher density construction, new lifestyle patterns and more intensive utilization of the available area. Realization of the Vision 2030 project will require the demolition of 4 million square feet of existing buildings, but in the larger context of the Silicon Valley, more than 5.5 million square feet has already been razed to make way for residential and supporting development of the new urban infill. While issues of balancing public and private responsibility for costs and other details remain, developers and city officials do seem both committed and enthusiastic.
Certainly, we were all stunned to realize that many of the new projects planned necessitated the destruction of existing facilities, many of which were less than 30 years old. In light of today's environmental sensitivity where recycling is viewed as a virtue, it can be difficult to comprehend that the life of many Silicon Valley buildings is but 30 years. On the other hand, changing space configurations have rendered them obsolete by design and shifting function. Further, the value of the land itself, which has increased from $2 a square foot in 1977 to $60 today, obviously places a monumental premium on obtaining higher use to maximize return on investment.
Our tour disclosed that many of the new projects are staggering in scope and ambition, yet again promising to change the landscape of Silicone Valley commercial real estate. Look at the numbers: 15 new high-rise office buildings totaling 5 million square feet; two hotels with a total of 340 rooms; 15 retail projects totaling another
1.3 million square feet; and countless infill residential units covering the gamut of lifestyle options. While the last building boom in the mid-1980s consisted almost exclusively of single-story buildings suitable for manufacturing, this building boom is characterized primarily by high-rise office buildings designed to attract engineering and business users in close proximity to supporting amenities. Commercial designs in addition to green features are likely to be architecturally imposing, giving the Valley a new face and vibrancy.
As exemplified by products of the new building boom, Silicon Valley promises to become taller and denser, yet ironically more human and environmentally friendly. The new commercial facilities address shifting technology industry demands for working environments that stress creativity while addressing employee needs like never before. Further, these commercial properties are very consciously being developed in an overall community context that, unlike the previous often myopic attention to economic function alone, will see a greener, more livable, more productive Silicon Valley.
January 2008 Commercial Edition Issue