July 4, 2017
Silicon Valley Begins to Crack Visibly
There are parts of Silicon Valley where commercial real estate is still hanging on, and there are parts where it has let go.
In Santa Clara, it has let go. Overall availability of office space in Santa Clara was nearly 19% in the first quarter, according to Savills Studley, up from 14% a year ago. Only two other areas in Silicon Valley – Milpitas and North San Jose – show greater availability at respectively 23% and a harrowing 30%.
The availability problem becomes very real along the Great America Parkway, between Highway 237 and Highway 101. It’s near Levi’s Stadium. Nearby, Yahoo owned 49 acres of land that it acquired in 2006 and on which it had planned to build its new headquarters. It tore down the buildings on it and got the project approved for 3 million square feet of office space. It scuttled these plans in 2014 and turned the land into a parking lot for Levi’s Stadium. In April 2016, Yahoo sold the property for $250 million to LeEco, a Chinese company that had surged out of nowhere.
LeEco was going to get into nearly everything, including electric cars in the US. It was going to build its global headquarters on it and hire 12,000 people. Then came reality. Earlier this year, LeEco in turn scuttled those plans and pulled back from the US, claiming that it had run into a cash crunch. It has since been trying to sell the property. There will be a buyer eventually, as always, but maybe not at $250 million.
Turns out, that corridor along the Great America Parkway is drowning in office space that is for lease.
“A growing Commercial Real Estate disaster” – that’s what Michael, who has been to this area on a regular basis since 2010, calls it.
“This should be a thriving area given it is directly in the path to Levi stadium,” he said. “I have been seeing an incredible amount of construction here and everywhere over the last few years. However in the past year, I am seeing a considerable amount of for-lease signs with new construction projects unabated.”