Caution: Optimism Ahead
The Valley racked up another quarter of encouraging gross absorption results across all product types. Although there is an increase in optimism about the region's commercial real state market, the crawl out from 2009 still carries some excess baggage. Job growth in the region remains in the doldrums as reflected in the latest figures reported by the U.S. Department of Labor in June, that show an 11.4 percent unemployment rate, down from the this year's peak of 12.4 percent reported in January. Until this area shows improvement, the region will have to settle for a slow and painful climb out of economic recession.

Growing confidence from corporate users has helped to increase the amount of leasing and user sale activity (gross absorption), which rose from 6.5 million square feet in the first half of 2009 to 9.9 million square feet in the first half of 2010. This is good news considering the beating the market took last year. Net absorption, which is somewhat improved but still negative, now totals negative 3.36 million square feet for the year, compared to an occupancy loss of 8.35 million square feet in the first half of 2009. Office was the only product type that produced positive net absorption for the quarter at almost half a million square feet of occupancy growth.

Rents are generally continuing to trend down. However, we are seeing some increases in Palo Alto, Cupertino and Sunnyvale. On the hopeful side, increased gross absorption signals that more new tenants are entering the market along with the usual lateral movement by existing tenants. A somewhat positive sign came out of PricewaterhouseCoopers' most recent venture capital numbers that showed venture capital investment in Silicon Valley jumping to $2.92 billion in Q2, up from $1.57 billion in the first quarter. Investments nationwide increased 34 percent from the prior quarter to $6.5 billion. Clean technology investing doubled from last quarter. This is welcome news for the Silicon Valley.

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