Tech and Real Estate: A Growing Relationship

It is widely known tech is an influential force in the Bay Area’s real estate market; both in the commercial and residential sector. As the industry continues to expand in the Bay Area, companies are looking to occupy more commercial real estate to accommodate a growing workforce, thus increasing demand on residential real estate. The question naturally arises: should we be worried the health of our real estate market might become too dependent on that of tech?

Apple, despite being in the midst of constructing a brand new 2.8 million square foot campus in Cupertino, just recently gained unanimous approval from San Jose City Council for a development initiative covering 86 acres near N. 1st Street in San Jose. When it’s all said and done, they hope to develop up to 4.15 million square feet of space for office, industrial, and R&D purposes. These two expansion projects alone amount to over 5% of the TOTAL occupied commercial space in the Silicon Valley.

Google, a serial real estate purchaser in recent years, has acquired nearly all of the Pacific Shores Center in Redwood City – totaling almost 1 million S/F of office space, with additional land to build more.

Before Facebook had even wrapped up the ribbon cutting ceremony at their newest 430,000 square foot Frank Gehry designed campus in Menlo Park, they broke ground on another 59-acre campus expansion.

Box Inc, which leased over 300,000 square feet in downtown Redwood City, has already packed up their Los Altos headquarters and moved 1,000 employees into the new Crossing/900 development (with plans to move in as many as 1,800 over the next few years), and with plenty of new commercial inventory under construction, other major tech players will be soon to follow.

These acquisitions and expansions sound big…and they are… so let’s look at the actual share of the commercial real estate market it occupies. According to a report issued by the CBRE Group, tech represents roughly 30.6% of the total occupied commercial space in San Francisco, 33.3% in the SF Peninsula, and a whopping 63.6% in the Silicon Valley.

A third of the total occupied commercial space in the peninsula is significant, and we will likely continue to see that number rise in the near future. More office is being built in downtown Redwood City, and with 2 large developments in San Mateo (the old Bay Meadows site and the Kmart site at Highway 92 and Delaware), tech could begin to occupy a higher percentage of office space on the peninsula. The same office expansion is happening in San Francisco, Sunnyvale, San Jose….and the desire for more space is putting pressures on the East Bay markets, especially in Oakland, Hayward and Fremont. With this growth comes growth in auxiliary industries like construction (plumbing, concrete, etc). Eventually, all of this tech-driven job production translates to greater demand for residential real estate. It’s very similar to the auto industry in Detroit. Manufacturing cars provides many jobs…but producing the steel, the glass, the plastics and distributing these items also employs a great many people. Our tech supported job market, while currently not the lion’s share of jobs in our area, wields more influence today than it has in our history. As a result, our residential real estate market will be very sensitive to any mood swings in the tech sector.

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