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Silicon Valley Rents Soar as Tech Gobbles Space

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There’s a lot of talk about the red hot residential real estate market in Silicon Valley, but commercial prices are also soaring.

Asking rents in Palo Alto now average $83 a square foot annually. That’s nearly triple the national average, according to Amber Schiada of Jones Lang LaSalle, a real estate services company.

In the last four years, commercial real estate prices are up 75 percent in Palo Alto and, in nearby Sunnyvale and Mountain View, prices are up 68 percent and 115 percent, respectively.

What’s driving the market? Brokers say tech companies are swallowing up inventory and sending prices through the roof.

“Over the last three years, Silicon Valley has been one of the most active and dynamic commercial real estate markets in the entire world,” says Michael Saign of Cornish & Carey. “Never before have the underpinnings of a Silicon Valley commercial real estate market recovery been fueled by so many creditworthy, well-capitalized and mature companies.”Which tech companies dominate the commercial real estate market in Silicon Valley?

Cisco is the leader with an estimated 10 million square feet. Google comes in second, occupying an estimated 9 million square feet. The search giant has acquired nearly 3 million square feet in just the past two and a half years.

Apple has 6 million square feet of office space, and the company is currently building a new campus in Cupertino. The centerpiece of that campus will be a circular office building totaling nearly three million square feet.

Those companies that can’t afford sky high rents need to move to less expensive areas of Silicon Valley such as Fremont or Milpitas, say real estate analysts, or squeeze more workers into smaller spaces.

If companies are looking for a bargain on rents, they shouldn’t look to San Francisco. In the last four years, office rents there have soared 70 percent, according to Schiada.

The real winners in this red hot market are the real estate developers, who are rushing to build more office buildings to satisfy demand. There’s 7.3 million square feet of space under construction right now in Silicon Valley, but 75 percent of that development is already pre-leased, according to Schiada.

Brokers say they expect the commercial real estate market to stay strong so long as business keeps booming for big tech.

Reprinted by permission.

Image credit: CC by Peter Thoeny – Quality HDR Photography

About the author: Josh Lipton

Josh Lipton is CNBC’s technology correspondent, working from CNBC’s Silicon Valley bureau. Lipton joined CNBC in January 2013 as an on-air markets reporter located at CNBC Global Headquarters in Englewood Cliffs, N.J.

Previously, Lipton was the markets editor for Bloomberg Television where he was responsible for all markets coverage, working with Bloomberg’s team to develop reports on stocks, bonds, currencies and commodities

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