Article misses the mark on local vacancies

| April 28, 2010 | 0 Comments

Stumbled across an article in USA Today that purported to be about the root cause of our locally high office vacancy rate.  The premise:  small start-ups are eschewing traditional office space en masse, leading to a spike in vacancies. 

First off, the notion that the disastrous turn in the fortunes of the commercial real estate market can be even secondarily attributed to a rise in the number of start-ups working virtually is a bit hard to swallow.  Silicon Valley and the surrounding region have always had more than their share of these sorts of decentralized companies and always will.  It is a part of the local culture, and will almost certainly continue to grow.

Anyone with experience representing start-ups knows that there are a few overarching themes that very consistently enter into the decision-making process when selecting a location.  Collaborative workspace.  Local amenities.  Small things on the surface perhaps, but all about team-building.    You just dont get that in a virtual environment, and piling into the founder’s dining room has practical limitations as well (not to mention potential zoning issues).

A more drilled-down look at the market really shows the flaws in the argument.  Yes, vacancies are high, and I expect will remain so for a while despite an improving local economy and busier real estate market.  But those of us with boots on the ground will tell you that finding small office space is challenging– even at the depths of the bad market last year, there just wasn’t a glut of multi-tenant space.  This is even more pronounced in the submarkets preferred by start-ups (Palo Alto, Mtn View, etc– Click here to read my recent report on the Mtn View submarket specifically). 

I think that we can expect to see these sort of predictions at about this point in every market cycle around here.  Home-based startups and telecommuters will certainly remain a big part of the local fabric, but I just don’t see this having a substantive effect on the commercial real estate market any time soon.

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