SAN JOSE Three of the nation’s top 10 office markets are in the Bay Area, according to a new commercial real estate report that points to strong job growth and low vacancies in San Jose, Oakland and San Francisco as key factors behind the rankings.
Technology companies are driving much of the commercial real estate surge and job growth, stated the report from Marcus and Millichap, a commercial realty firm.
Marcus Millichap ranked the San Jose metro region, defined as Santa Clara County, the No. 1 office market; the San Francisco metro area, defined as San Francisco and San Mateo counties, the No. 3 office center; and the Oakland metro, defined as the East Bay, the No. 9 market.
“The vibrant technology-driven innovative business climate in the San Jose metro continues to drive office space demand,” Marcus Millichap wrote in its report. “The vast number of Fortune 500 companies in the area are steadily taking down additional space and building or expanding new headquarters.”
Huge projects by Apple, Google, Nvidia and Palo Alto Networks are slated for completion this year and should produce an additional 4.4 million square feet of space, the realty brokerage stated. That’s the equivalent of three major regional malls the size of Valley Fair in San Jose or Sunvalley mall in Concord.
High-tech also is driving office growth and low vacancies in the San Francisco-San Mateo metro area.
“Salesforce Tower is set to remake the San Francisco skyline,” Marcus Millichap stated in the report. “A broad slate of financial services and technology startups have fueled tremendous net absorption in the San Francisco office market.”
Plus, in San Mateo County, office sites near corporate campuses could gain “considerable buyer interest” when adjacent tech companies seek expansion, the brokerage said.
For decades, the East Bay — outside of the semiconductor companies in Fremont and some software firms in the Pleasanton-San Ramon-Livermore area — has been something of an afterthought for technology. But the decision by Uber Technologies to create a second headquarters in downtown Oakland has been hailed as a game changer for the East Bay.
“The move by Uber will help solidify Oakland as a marquee tech hub, likely spurring further business expansion in the area,” the commercial realty firm said.
Oakland jumped four spots in the rankings from No. 13 to No. 9, San Jose rose one spot from No. 2 to No. 1, while San Francisco dropped three spots from No. 1 to No. 3. Another tech-dominated region, Seattle, moved into the No. 2 spot.
Santa Clara County employers are expected to add 30,000 jobs during 2017, the brokerage predicted, compared with official state labor reports of a gain of 31,100 jobs in 2016. The East Bay will add 35,000 jobs this year, compared with 34,300 in 2016. Projections for the San Francisco-San Mateo area weren’t available.
Office vacancies are expected to shrink in Oakland and increase in both San Francisco and San Jose. The vacancy rate is expected to be 11.1 percent in the East Bay, 11.3 percent in Santa Clara County and 10.5 percent in the San Francisco-San Mateo area, the brokerage reported.
One of the veteran commercial realty brokers in the Bay Area, Philip Mahoney, vice chairman of Newmark Cornish Carey, believes San Jose’s No. 1 ranking is fully justified and sees plenty of strength ahead, even though supply has begun to outstrip demand.
“Long-term, I continue to be bullish about the Santa Clara County office market,” Mahoney said. “Short-term, we are hitting a bit of a pause.”