SUNNYVALE — Apple’s mega-deal to gobble up several Sunnyvale office buildings may mark the start of a surge in Silicon Valley tech expansions, a welcome counterpoint to the economic woes unleashed by the coronavirus.
The iPhone maker’s transaction doesn’t appear to be an isolated incident and isn’t likely to be an aberration for the 2021 office market in Silicon Valley, in the view of commercial property experts.
“The 700,000 square feet that Apple took is by no means a one and done,” said Phil Mahoney, an executive vice chairman with Newmark, a commercial real estate firm.
In May, Apple leased five buildings at Pathline Park, a big Sunnyvale office campus.
“We have seen a marked increase in the tech tenant interest in the market,” said Erik Hallgrimson, a vice chairman with Cushman & Wakefield, a commercial real estate firm. “This is the most activity we have seen since the pandemic started.”
This expansion could translate to jobs for a wobbly Bay Area economy that has struggled to recover from mammoth coronavirus-linked employment losses. The Apple lease alone provides enough space for 2,800 to 3,500 workers.
Facebook has launched a real estate expedition lately to scout for as much as 500,000 square feet of offices in Silicon Valley.
Google has been conducting inquiries recently about significant chunks of office space, a requirement that is in addition to its already considerable development ventures in downtown San Jose, Sunnyvale, and Mountain View.
“We will have more remote work, but it won’t be for everyone,” said Garrick Brown, Newmark’s Managing Director of western region research. “Companies might wind up needing about the same amount of office space they required before the pandemic.”
Cupertino-based Apple’s big transaction in Sunnyvale also appears to mark a major milestone.
The 701,000 square feet that Apple rented is believed to be the largest Silicon Valley office lease since the coronavirus-linked business shutdowns began in March 2020.
This improving office sector in Silicon Valley runs counter to the conventional wisdom that fears arising from the coronavirus had chased tech companies away from the office for years to come, perhaps permanently.
To be sure, the days of 50 tech and software engineers sitting on a bench might be over. But real estate experts believe the days of tech employees working out of the company offices have yet to hit their expiration date.
“Working from home is way overrated,” Mahoney said. “Return to work is very much in vogue.”
Some major development players are making bets that they can capitalize on the current wave of interest from tech giants.
Case in point: a big tech campus in Sunnyvale that Mahoney is marketing on behalf of its new owner, Tishman Speyer. Tishman Speyer bought the campus from NetApp, which is moving its headquarters to San Jose.
Tishman Speyer was confident enough in the commercial property market locally that it purchased the campus for $365 million even though NetApp decided to vacate the complex altogether as part of the headquarters relocation to San Jose.
Moffett Green is the new name of the Sunnyvale campus, according to Mahoney.
The new marketing name of Moffett Green name is a reminder of its location in north Sunnyvale’s Moffett Park, one of the hottest office markets in the Bay Area. And green is a connection to sustainability. Plus, the amenities include a considerable amount of green-swathed open space.
At the time of the property purchase in April, Tishman Speyer executives made it clear they had complete confidence in their new Sunnyvale asset.
“Silicon Valley is at the epicenter of the innovation economy and demand for high-quality office space, specifically around Moffett Park, is very strong,” said Rob Speyer, president and chief executive officer of Tishman Speyer.
Interest in Moffett Green has already begun to heat up, according to Mahoney.
“The interest is very serious,” Mahoney said. “We have had a number of tours at Moffett Green.”
Facebook, Amazon, and Google all occupy major office hubs totaling at least 1 million square feet each in northern Sunnyvale. And the Tishman Speyer purchase of the NetApp buildings makes the developer and Google next-door neighbors.
Other developers also express confidence. Hudson Pacific just inked two lease renewals in Palo Alto, one with Google and the other with Lockheed, said Drew Gordon, executive vice president of California operations with Hudson Pacific, a big real estate developer.
“Google and Lockheed are staying engaged in a major office environment,” Gordon said. “That is a positive sign from our perspective.”
At least for right now, tech titans are more likely to hunger for office space than the smaller players, experts say.
“The larger tenants that might need more time to occupy a new space are starting to take a serious look at their real estate options right now,” Cushman & Wakefield’s Hallgrimson said.
Plus, corporate real estate directors at big tech companies could feel some pressure from their chief executive officers to be certain the company isn’t left out in the search for new spaces.
“No one wants to get left behind, especially with real estate,” Mahoney said. “It’s not career-enhancing to have to explain to the CEO that a product couldn’t get out in time because the company didn’t have enough people in seats because there wasn’t enough office space.”
Plus, Silicon Valley’s inventive culture tends to lean towards collaboration rather than isolated telework.
“Innovation doesn’t happen on a zoom camera,” Gordon said. “Innovation happens in person.”