Big deals driving the market

| October 25, 2011 | 2 Comments

VM Ware’s new Palo Alto campus

Last week at a company-wide meeting, my colleague Jim Beeger pulled out a tidbit of market information that I found very compelling, and in keeping with something I’ve commented on here previously.   Jim identified six different cities around Silicon Valley in which over half of year-to-date Gross Absorption (total leasing activity within a market area) was due to one or more transactions consummated by a single tenant.

 

 

 

His list  (City/800 lb gorilla/percentage of YTD absorption):

  1. Los Gatos/Netflix/91%
  2. Cupertino/Apple/85%
  3. Menlo Park/Facebook/84.5%
  4. Newark/Logitech/66%
  5. Mountain View/Google/55%
  6. Palo Alto/VM Ware/54%

Jim probably intentionally excluded Los Altos (Box.net/62%) from his list because it’s a pretty small submarket, but I think that since big deals are so rare in that town, it is perhaps an even more noteworthy data point.   Up the Peninsula, San Mateo (Sony/46%) just missed the cut-off (although Sony’s deal did account for roughly 2/3rds of County-wide absorption in this last quarter)

I did enough spot-checking of stats from previous years to confirm my assumption that it’s pretty unusual for this to be so pervasive.  I’m not a big fan of most city-by-city stats, but I think that in this case they paint a pretty compelling picture that large transactions are playing a disproportionately large role in the market at the moment.  Pent-up demand from established companies in the wake of the recession?  Space-banking by the players large enough to do it?  Probably some of both.  I think it does show a hole in the strength of the market recovery to date, and increases at least a bit the risk of a future wave of sublease space hitting the street.  Certainly worth keeping an eye on.

 

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