Palo Alto, CA (July 30, 2012)  
The Silicon Valley office market sustained its dynamic performance in the second quarter as the technology sector continued to secure space at an unprecedented pace. Additionally, a wider range of industry sectors, including law firms, commercial banks and private equity firms contributed to the strong leasing activity, demonstrating that the market’s recovery is becoming more broad-based.

According to the Silicon Valley Studley Report, Studley’s analysis of office market conditions in 12 Valley submarkets, the region’s Class A vacant available rate fell to 19.2 percent in the second quarter and dropped 4.8 percentage points over the last four quarters. However, some of other key market indicators, such as overall vacancy and four-quarter trailing leasing, reflected a slight slowdown in activity.

“Technology companies continue to make pre-emptive strikes, claiming entire projects or multiple sites before developers even begin the marketing process, “ said George Fox, Studley senior vice president and branch manager of the firm’s Silicon Valley office. “This seemingly unabated demand has also spurred new development in some of the Valley’s most desirable submarkets, including Menlo Park, Palo Alto, Mountain View, Sunnyvale, Santa Clara and San Jose.”

Market highlights
• Reversing a trend, the overall rate for vacant available space increased by +0.5 pp to 13.9%.
• Overall asking rent stood at $2.47 per square foot, per month, up by 0.8% for the quarter. The Class A rate, $2.73, registered a decrease of 0.6%.
• Trailing four-quarter leasing volume totaled 7.7 million square feet, a drop of 15.3% for the quarter.
• Overall net absorption totaled 338,962 square feet, down by 57.8% for the quarter. On a trailing four-quarter basis, overall net absorption (2.8 million square feet) rose by 3%.

Major transactions

During the second quarter, six transactions totaling 100,000 square feet or more were completed, all executed by technology companies. The top three transactions were LSI Corporation’s 220,590-square-foot purchase of 1310 & 1320 Ridder Park Drive in North San Jose; LinkedIn’s 165,000-square-foot lease transaction at 599 North Mathilda & Vacqueros avenues in Sunnyvale; and Infoblox Inc.’s 126,594-square-foot lease at 3111 Coronado Drive in Santa Clara.

Market outlook
Silicon Valley and New York City are the only two markets to have recovered all of the office-using jobs lost in the last recession. As of May, office-using employment in Silicon Valley was nearly 3,500 jobs above its prior peak in late 2008. The area’s top employers continue to plan for substantial workforce expansion and, subsequently, real estate activity will sustain its dynamic pace.

“As the market tightens, tenants are becoming more creative and proactive in their search for office space, exploring a wide range of options including build-to-suit, purchase and adaptive reuse of existing retail or residential space,” stated Fox.