Mountain View Q1 2009 Update

Vacancy Rate Increases

Mountain View remains one of the strongest markets in the Bay Area. Market softening has occurred across the region, with Silicon Valley and even traditionally sturdy markets like downtown Palo Alto seeing large vacancy increases. With that said, regardless of its relative submarket strength, overall Mountain View saw vacancy rise by 31% to an overall 8.26% availability.

The largest contributor to the increase in overall availability in Mountain View is the 48,595 sf of Downtown Mountain View sublease space, which increased by nearly six fold this quarter. A large portion of this is attributed to Ebay/Pay Pal’s new sublease at 303 Bryant. This 22,453 sf space is asking $4.25 full service with term through June 30, 2012. 17,589 sf of this sublease on the third floor is fully plug & play. Finding reasonably priced space for sub 3k start ups Downtown Mountain View remains difficult, while the opportunities for companies in the 7,000-11,000 sf range are more prevalent.

Asking Rates Decrease

Overall Mountain View rates were $3.13 in Q109, down over 10% from $3.48 in Q4 08. Downtown Mountain View rates dipped below the $4 mark for the first time since Q3 2007 quarters with average rates at $3.93. Companies are still willing to pay a premium of roughly 25% for the amenities, transportation and convenience of a downtown location.

 Of the transactions completed in the overall Mountain View market 73% were under 5,000 sf, 20% were 5-10,000 sf and only one transaction occurred above 10,000 sf. Most of the transactions in the market are renewals. The largest transaction in Downtown Mountain View this quarter was You Plus at Castro Station, 100 W. Evelyn.  The three year deal on 8,760 square feet was completed at a $4.20 Full Service starting rent with four months of free rent on a Plug & Play space and represents the largest positive market absorption in Mountain View this quarter.  As a signal of the market going forward, 650 Castro has a 3,000 sf pending sublease transaction at $2.50 NNN (plus $1 in estimated expenses) for a one year, as-is, plug & play deal 

Forecast

Availability is expected to increase in both Downtown and throughout Mountain View for the rest of 2009. Expect more aggressively priced subleases, as companies seek to off load their excess inventory. Overall asking rates will be dragged down by the increase in available subleases and direct vacancy.