Silicon Valley Offices Trading at Massive Discounts
While a surge in office leasing signals that a recovery is emerging in Silicon Valley’s office market, sales prices for recent office trades indicate that valuations are still trailing the bottom.
Office properties that have traded at bargain-basement prices in recent weeks include a two-building campus in Santa Clara that Los Altos-based Four Corners Properties scooped up in an all-cash deal for about $21M, a 75% discount off its last assessed value.
In January 2024, the 149,100-square-foot campus on Jay Street was valued at more than $80M, according to documents on file with the Santa Clara County Assessor’s Office.
A few miles to the south in Campbell, PSAI Realty Partners paid $54M in an all-cash deal for the iconic Pruneyard, a three-tower complex encompassing 365K square feet that sits next to Highway 17.
That’s 62% less than the $142M that Oaktree Capital Partners and Ellis Partners paid six years ago to acquire Pruneyard Towers, and a 65% discount off the $155M value of the property in the county’s January 2024 assessment.
This week, lender Prime Finance Short Duration Holding Co. took ownership of a 76K square foot office building at 2290 North First Street in San Jose in a trustee’s sale after the lender foreclosed on a $12M loan it had provided in 2021 to the owner, an affiliate of Swenson, SiliconValley.com reported.
The lender grabbed the building for slightly less than $9M, about 55% less than the county’s January 2024 assessment.
Earlier this month, Broadcom slashed the anticipated value of bids it expects to get for a 13-building office and R&D complex encompassing 1.1M square feet in Palo Alto to about $200M, or $190 per square foot, less than half the property’s estimated value when the semiconductor giant put it on the market last year, according to a Green Street alert.
The 70-acre property, located at 3431 Hillview Avenue in the Stanford Research Park, makes up the bulk of a 1.6M square foot campus that Broadcom acquired as part of its $69B purchase of rival VMware in 2023. Broadcom initially planned to relocate its headquarters to the property, but instead pivoted to a cost-cutting strategy and reserved only a third of the campus to occupy.
When Broadcom put the 13 buildings up for sale in January 2024, marketing materials touted the offering as a “generational opportunity to acquire the largest single asset” within the 10M square foot Stanford Research Park. Bids were expected to come in at $440M, or $400 per square foot.
The nearly empty office campus is 14% leased with a weighted average remaining term of three years. The buildings, most of which were developed between 2012 and 2013, range in size from 62K square feet to 192K square feet.
Led by a bevy of big-ticket tech deals, office leasing volume in Silicon Valley jumped to 2.4M square feet in the fourth quarter, the first time the quarterly tally has topped 2M since Q2 2019.
A leasing surge of more than 4M square feet in the second half of 2024 pushed the full-year deal volume over 5.5M square feet in Silicon Valley, setting the stage for a potentially robust office recovery in 2025.
The overall office availability rate in Silicon Valley dropped by 160 basis points to 25.9% in the fourth quarter, down from 27.6% in Q3 2024, Savills reported. Available sublease space totaled 6.6M square feet at the end of 2024, a 25% drop from the 8.8M square feet available at the end of 2023.
Source: GlobeSt/ALM