CRE 2018 Year in Review – Silicon Valley

It’s no surprise that within a 24 hour time period the Silicon Valley real estate market can make drastic changes, dancing along the price, occupancy and inventory charts – let alone an entire year. Here’s a jam-packed list of the major headlines for Commercial Real Estate pertaining to Silicon Valley, California’s technology hot spot.

  • Facebook was responsible for the largest office lease in San Francisco for 2018. The social media giant leased over 1.1 million square feet in San Francisco, making it the third-largest tech tenant in the city following Uber and Salesforce.
  • Silicon Valley made for about 21% of the nation’s new office construction.
  • A collection of major retailers went extinct leaving business owners and real estate professionals to get creative with how big box spaces will be utilized in the future. Toys ‘R Us, Kmart, Sears, Macy’s, J.C. Penney, Walgreens, GAP were among the few to officially close many, if not all existing stores in 2018 as E-commerce steals the spotlight.
  • New building designs omit concrete in the structural framework in attempts to be more eco-friendly. Imagine the structural deficiency potential there – yikes.
  • Confident foreign capital continues chasing U.S. Commercial Real Estate.
  • High tech accounted for nearly 20% of office leasing in Silicon Valley in 2018.
  • High overall mature market growth in 2018, right behind Northern Virginia.
  • Senior Housing occupancy trends plummeted as independent living occupancy rates sky rocketed. Could this correlate with medical advances and the ability for the elderly to remain independent and healthier for longer periods of time?
  • Commercial real estate prices rose across a multitude of sectors/industries by about 7% compared to the same period last year, according to Real Capital Analytics’ Commercial Price Property Index report.

As the economy strengthens and the ever-anticipated economic correction surfaces, only time will tell what lies ahead in 2019 for commercial real estate in Silicon Valley.

Big Box Bust – A Demise to Tech Craze

The Plunge

The big box bust that’s storming through the nation doesn’t seem to be lightening up any time soon. Unprecedented  retail mega-stores now shutting down at an incomprehensible pace due to evolving consumer trends via internet purchases and accommodating delivery services.  Kmart, Toys ‘R Us, Sears, Carson Pirie Scott, Abercrombie & Fitch, Barnes & Noble, J. Crew (U.S.), GNC, even Subways are shutting the doors in large batches across the country [1]. The iconic brands dissolving across the nation not only pulls at the nostalgic heart strings of many, but sheds light on the shifting ideals of what it is to be a retailer in conjunction with progressive consumer habits or preferences. With the shopping demand surging through the internet, this has left many retailers to discover a massive decrease in sales over the past decade. Some retailers, such as Rue 21, a tween clothing store, even filing for chapter 11 before even experiencing significant financial trouble as a proactive measure that is likely an inevitable hardship tumbling their way.

Tech giant, Amazon, the world’s largest online retailer, has forever changed the way modern shopping behavior is executed. Everything from groceries, digital books, electronics, clothes, school supplies, pet food, and more can be purchased and usually delivered between a few days and even hours, depending on the type of account a user has. The unfathomable convenience bit makes shopping on Amazon extremely attractive in that one can shop for anything, at any time, and have it delivered directly to their desired location. Inevitably, as Amazon popularity skyrockets, big box retailers suffer drastically, causing a wave in the economy and the way in which commercial real estate evaluates retail sectors [2].

With vacancy rates increasing in large shopping malls, the challenge of finding occupiers for big box spaces becomes evident. Throughout the U.S., stores previously occupied by, now-bankrupt,  retailers are being converted into shared office space or restaurants.  More than ever, mall owners are welcoming unconventional tenants to obtain some of the estimated 200 million square feet of retail space that has closed, or expected to do so since early 2017 [3].

“Landlords need to be creative, strategic and quick with their large-sized vacancies — the Silicon Valley has become a hotbed for small- to mid-sized retailers coming from all parts of the country to take advantage of our increased population density and disposable income. These large vacancies can be flipped into very lucrative, higher dollar-per-square-foot units with the right strategy in place.” explains Senior Vice President, CSR Commercial Real Estate Services, Jonathan Hanhan.

Getting Creative

As countless big box stores remain vacant, the leaders in commercial real estate are challenged to think outside of the box (pun intended). Ginormous buildings with a naturally open layout, such as Macy’s department store, have been converted into movie theaters, music entertainment venues, and even sporting arenas [4]. This new wave of occupancy bingo creates massive opportunity to get creative and move fast. In conjunction with the e-commerce craze, more of these spaces are being converted into warehousing units. In other areas, restaurants, fitness centers, and office space is taking over. Iconic Silicon Valley’s tech bubble creating crisis for local retailers with the rest of the nation not far behind.

Big Box Bust - Numbers don't lie

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The information furnished has been obtained from sources we deem reliable and is submitted subject to errors, omissions, and changes. Although CSR Commercial Real Estate has no reason to doubt its accuracy, we do not guarantee it. All information should be verified by the recipient prior to lease, purchase, exchange, or execution of legal documents. 2018 CSR Commercial Real Estate Services. All rights reserved.
[4] CoStar

Where are They Going?

It’s 2018 and there’s an ever so interesting pattern of Americans relocating across the nation.  The ideals of living close to aging relatives and keeping the same job for 20+ years has vanished, making room for modernized moving habits. Who is moving exactly? Where are they moving to and why? The top states will be further evaluated in the context – the reasons may surprise you.

With a strengthening economy, the housing crisis of 2007 years in the past, millennials making a breakthrough in the job market, a new wave in geographic mobility takes over the more confident market. Statistics show, that now more than ever people are moving. Whether it be to explore life away from home an attend an out-of-state university, relocation for a job, entering into a completely different job market, differences in local economies, or just plane old preference and quality of life. Believe it or not, Americans are likely to move more than 11 times in their lifetime [1]. To focus more demographically, in recent years 17.3% of those that are moving to another state are under the age of 18. For those 65 years and older can account for 6.7% of out of state moves…helloooo Florida! The median age of movers from different states you ask? Around 28 years old [2]. To put this into perspective, in the state of California, in the year 2012 alone, approximately 493,641 people moved from other states to California. While that number may be alarming for a single state, the total moving out of California in 2012 was about 748,252 people. While those numbers solely reflect one state’s newcomers and leavers, data sources reveal that nearly 7.1 million Americans relocated to a different state within the U.S. during that year. So where are they going?

It’s obvious that different people have different reasons for moving. More often than not, the cost of living has a huge impact on these decisions. Texas, despite it being our second largest state in the U.S. (you forgot about Alaska, didn’t you) has a relatively lower cost of living from, let’s say Illinois. Data reveals that it is 21.51% cheaper to live in Houston, Texas than it is in the suburbs of Illinois [3]. In 2015, Texas experienced a 7.8% bump in population [4]. With this in mind, prices have begun to rise incrementally in various cities to make way for economic adjustment. Similarly, Jacksonville, Florida has experienced a 5% increase in migration, primarily from those in more expensive states just north of the Floridian paradise – New York and New Jersey.  More recent findings, from 2016, uncover the top states subject to domestic migration. The fastest growing states are as follows (listed in ascending order to highest population growth): Arizona (1.66%^), Colorado (1.68%^), Oregon (1.71%^), Washington (1.78%^),  Florida (1.82%^), Idaho (1.83%^), Nevada (1.95%^), Utah (2.03%^) [5]. Why these locations in particular? Beautiful views, nice weather, low taxation (if any), job growth, and housing opportunities.

On the contrary, these eight states are seeing a loss in population, despite some of them being prime tourist destinations: New York (-.01%), Mississippi (-.02%), Pennsylvania (-.06%),  Wyoming (-.18%), Connecticut (-.23%), Vermont (-.24%), Illinois (-.29%), and finally, West Virginia (-.54%) – that’s 10,000 people!

While natural growth, such as birth rate, accounts for nearly 55% of the national population increase, for the eight states detailed above, domestic migration was the largest contributing factor to population growth.  In sum, migration is responsible for 76% of all new state residents among the eight fastest-growing.

Let’s break things down a bit from a comparison standpoint. What is it that West Virginia (experiencing negative growth) lacks that states like Utah (the state with the most positive growth in population) possesses.

West Virginia:

  • 1 year population growth rate: -.54%
  • Has a relatively high death rate due to an older population
  • One of the lowest birth rates in the country
  • Unemployment rate is one of the highest at 5.4%
  • 17.9% of the state lives in poverty


  • 1 year population growth: 2.03%^
  • Has the largest average family size
  • Has the lowest death rate in the country due to a younger overall population
  • 3.1% unemployment rate
  • Beautiful scenery  and relatively low cost of living

Where are you headed? Should you be interested in moving within California, our residential experts are here to help. Moving out of the Golden State elsewhere? No problem, our relocation connections and nation-wide network are just a phone call away. Contact your preferred agent today!