Silicon Valley: Is It The Place To Be No Matter The Cost?
Silicon Valley charges a premium for its coveted land and it seems reserved for the tech elite.
Verizon’s $4.8 billion purchase of Yahoo made headlines last week. What generally wasn’t discussed was the fact that one tenth of the price included the roughly 1 million – square foot campus that Yahoo owned in Sunnyvale, California. Like any in-demand real estate around the world, Silicon Valley charges a premium for its coveted land and getting hold of it in large swathes is an undertaking reserved for the tech elite.
Yahoo’s $500 million value (according to Mark Ritchie of Ritchie Commercial) for its campus is slightly over the going rate of $4.17 per square foot of average office rents in the second quarter this year. It means that Facebook (3.5 million square feet), Google (3.1 million square feet) and Apple (2.8 million square feet) are the major players in Silicon Valley commercial real estate as well as technology, purchasing and leasing land and buildings in the area.
So why, in this digitally inter-connected world, where location is supposed to be irrelevant, is location so important?
“Because there’s more to Silicon Valley than simply being connected to the internet,” says Jasbinder Bhoot, VP sales and marketing at eASIC, a Silicon Valley start-up.
“There’s a whole ecosystem here of talent. From lawyers, to venture capitalists to people who have experience and success in starting companies that is simply not reproducible anywhere else in the world.”
Whether Bhoot’s optimism about the merits of being in Silicon Valley is reflected in its real estate is open to debate.
Real estate brokerage JLL said that developers broke ground on 2.5 million square feet in the second quarter amid heavy demand from China but a report from the same company also stated that leasing activity has slowed and new buildings are increasingly opening vacant. That dynamic, JLL said, “reflects the beginning of a cooling period as tenants and landlords alike take pause to assess rent growth in addition to how much longer this cycle will last.”
Bhoot feels that in much the same way, other cities undergo fluctuations in its real estate market without ever threatening the core businesses associated with it. Silicon Valley will always be the center of the technology industry.
“When an industry’s human capital is so entrenched in one place as entertainment is in LA and publishing in New York, it won’t leave. There may be offshoots elsewhere and in other cities but Silicon Valley real estate will always be a valuable commodity because of what’s here.”
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