SV Business Journal: Rockwood office building buy latest sign of red-hot downtown Palo Alto office market

| December 2, 2013 | 0 Comments

You don’t have to read Colliers Market Snapshots regularly to know that downtown Palo Alto is home to one of the most impacted office markets anywhere.   I had dinner the other night with a friend who has been living abroad for the last decade or so, and HE mentioned that he’s been hearing about just how crazy our local market has become.

An article in last week’s Silicon Valley Business Journal talks about the most recent jaw-dropping sale of a major downtown building, and how this sale fits in nicely with market conditions of the moment.   Its a good overview of some of the factors that are driving the incredible run-up of valuations there, and is definitely worth a read.

I think that this foray into four figure per-square foot pricing appears more out of control than it really is.  We expect modest CAP rates for properties in a high-profile market like Palo Alto, and I think $1000/sf still allows for pretty good returns even if rents do soften down the road.  Anyone who has been involved in the industry for an extended time knows that, cycle after cycle, this little pocket is the last to feel the pressure of a weak market and the first to get back on its feet after a downturn.  The perceived startup exodus to San Francisco wont change this fact.

Not mentioned in the very good Business Journal article was the heated competition to buy 130 Lytton Ave (not to mention the other high-profile buildings that have changed hands).   Seems there’s plenty of smart money chasing deals at this level, and I think this appetite will continue for a good while.

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