Cornish: Bay Area Property Values Will Continue to Rise in 2012
Submitted January 24, 2012, 4:29 PM
Bay Area commercial property buyers will accept even lower investment returns for the opportunity to catch the technology expansion wave, according to a new forecast from brokerage Cornish & Carey Commercial Newmark Knight Frank.
Moreover, markets such as Palo Alto, Sunnyvale, Mountain View and Cupertino have ascended to “core” status in the minds of many investors, drawing buyers that hitherto had had little or no Bay Area presence.
Falling yields, or capitalization rates, mean rising property prices, all else being equal.
A manager of Canadian pension funds recently acquired a San Jose apartment complex with nearly 1,000 units, accepting a going-in cap rate, or yield, of less than 5 percent, based on current rents, in one marketplace example.
Traditionally, property investors have reserved core status for the best located most modern buildings leased to the most financially stable tenants in the world’s most resilient commercial marketplaces. International cities that serve as gateways to world commerce such as Paris, London, New York and San Francisco are obvious traditional core markets.
Palo Alto with its proximity to Stanford University and money-wielding venture capitalists has long been considered among the Bay Area’s most attractive investment markets. But the addition of Mountain View, Sunnyvale and Cupertino to the list of the anointed marks another milestone in the Bay Area’s commercial property markets and elevates those markets to a new national and international status.
The Bay Area’s economic recovery is today in the bottom of the fourth inning, said Erik Doyle, an executive managing director for Cornish’s Capital Group, drawing on a baseball analogy. Speaking at the brokerage’s annual forecast event in Santa Clara on Jan. 24, Doyle said his company expects Bay Area job growth to continue to outpace that of the country at large.
Cornish is tracking nearly 16 million square feet of tenant demand in San Francisco and Silicon Valley. That follows a year in which those markets saw their occupancy expand by more than seven million square feet.
Silicon Valley alone saw its workplace occupancy expand by more than four million square feet, including both office and research and development buildings—“a record that exceeds the dot.com era,” said Phil Mahoney, an executive vice president in corporate and institutional services for Cornish.
Class A office vacancy fell by nearly 9 percentage points to 11.9 percent from more than 20 percent as 2011 began, despite persistently high unemployment caused at least in part by better-than-ever worker productivity, Mahoney said.
