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Q3 2013 - Playing With Fire

Downtown San JoseThe end of the third quarter also marks the end of the fiscal year for the federal government – which ended the year in a political deadlock. The federal shutdown threatened to undo the economy’s recent recovery and left the nation unsettled as we awaited a decision from lawmakers about the debt ceiling. Although to many the federal squabble may have seemed merely frustrating, the effects of the shutdown were felt across the nation. For commercial real estate, the Small Business Administration shutdown halted small business lending. Investors experienced delays and the postponing of deals. In commercial real estate, delays can be deal breakers.

Leading up to the government shutdown, the micro economy here in the Silicon Valley continued to thrive. Construction is booming in both the commercial and residential markets. Unemployment and labor force statistics published by the Bureau of Labor Statistics continue to show promise. Unemployment in the Silicon Valley has fallen to 6.8%. Compared to one year ago, the number of people employed in the Silicon Valley has increased by 34,188 people, or 4.0%.

New leasing and user-sale activity during the third quarter decreased 15.5% from the previous quarter to register 5.16 million square feet. Despite the decrease in activity, this amount of gross absorption is indicative of a healthy quarter and is on track to meet Colliers expectations of just over 22.45 million in 2013. While gross absorption declined in the office, R&D, and warehouse sectors during the quarter, activity picked up in the industrial sector. Historically, the Silicon Valley’s office and R&D sectors see the majority of activity in the overall market. This was the case during the third quarter as well, with office and R&D leasing accounting for 74.9% of all new activity.

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