Silicon Valley's Worst Office Glut in 5 Years Means Real-Estate Bloodbath

[Purveyor]

By Dan Levy

Jan. 5 (Bloomberg) -- Silicon Valley is beset by the biggest office property glut since the dot-com bust, leaving the U.S. technology hub with empty high-rises and office parks that make it impossible for landlords to sustain average rents.

More than 43 million square feet (4 million square meters) -- the equivalent of 15 Empire State Buildings -- stood vacant at the end of the third quarter, the most in almost five years, according to CB Richard Ellis Group Inc. San Jose, Sunnyvale and Palo Alto have 11 empty office buildings with about 3 million square feet of the best quality space.

“There is a bubble bursting in much the same way as the residential market burst,” said Jon Haveman, principal at Beacon Economics, a consulting firm in San Rafael, California. “None of those towers will fill up anytime soon.”

Unemployment in the San Jose-Sunnyvale-Santa Clara metro area that includes Silicon Valley was 11.8 percent in November, down from the August record of 12.1 percent, according to California’s Employment Development Department. Applied Materials Inc. and Sun Microsystems Inc. in Santa Clara and Adobe Systems Inc. in San Jose announced more than 5,000 job cuts since October amid falling sales of computer chips, software and equipment.

Commercial property foreclosures will at least double in 2010 and job growth won’t return for two years after that, held back by U.S. consumers who are saving more and “getting back in line with sustainable spending habits,” Haveman said.

Domino Effect

Bloated inventory and tight lending standards will curtail office construction in pockets around California for “the next several years,” said Jack Kyser, founding economist of the Kyser Center for Economic Research at the Los Angeles Economic Development Corp.

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BLOOMBERG: http://www.bloomberg.com/apps/news?pid=20601109&sid=a7pUR5eBwlJI&pos=11

[dkf]

1. This is bad news.

Technology is the only advantage we have over the rest of the world. If our tech areas are in bad shape we will be too

[SharonAnn]

12. They're hiring new tech employees overseas. They don't need offices here.

[Hell Hath No Fury]

2. Here in SF --

it is the same way -- there practically isn't a building downtown without a "Space for Lease" sign on it. I haven't seen anything like it before.

[Ignis]

3. Time to start squatting!

Well, it would be if US laws allowed it.

[Brother Buzz]

7. Squatting isn't necessarily illegal

and what's more, the laws protect the squatter to some degree. The owner has to take legal to toss the squatter out and protect his property. If not, the squatter could ultimately/conceivably own the property.

There's a legal precedent in most of the United States called adverse possession. This doctrine says that if a squatter lives "openly, continuously and hostilely" in a home for a prescribed number of years, he or she can become the owner. This applies to property that's vacant and where property taxes aren't being paid. The three criteria that must be met are making no attempts to hide the inhabitation (open), living in the dwelling continuously and without permission (hostile). If the squatter pays property taxes on the home, when the time limit is reached, he or she is considered the owner.

The time requirement before ownership through adverse possession kicks in varies from state to state. In California it's five years.

[Ignis]

9. Well, in comparison with UK law, US law is anti-squat.

But you make a good point, and I think it's time to start testing the limits here. One of the major pitfalls I see are the fact that adverse possession might prove difficult, since many of these properties change hands (albeit really just the property management) more frequently than every 5 years.

:hi:

[amborin]

6. true all over California....

[xxqqqzme]

8. Yes it is.

Orange County was/is heavily overbuilt. For lease signs everywhere. Was in Palm Springs over New Year's Eve. Many empty storefronts & closed restaurants there as well.

[flyarm]

4. terrible in Fl as well..signs everywhere with so many empty buildings..and retail stores..

I have never ever seen it like this!

And with the weather so cold up north..we should have lots of winter toruists by now..the place is a ghost town..and I am on the beach where the tourists come and support our economy..zilch..hotels and rental condo's empty!!

[melm00se]

5. Don't know if there is a law against it

but I would guess that it's just a matter of time for some enterprising landlord to convert to a lower cost residential housing, the Valley could sure as hell use it.

[Ignis]

10. Local zoning laws and CoCs would probably be the problem.

But those could be circumvented by a state-wide initiative. Who's with me?

[Greyhound]

11. "Nobody could have predicted..." n/t