California means many things to many people. The Golden State is the birthplace of many of today’s tech behemoths, as well as a startup wonderland. Cities like San Francisco, Los Angeles and San Diego are attracting some of the best talent not just locally or nationally, but also from all over the world. With increasing job opportunities and a thriving business sector, cranes pepper the Californian sky as developers are eager to address the demands for new office space. And, it’s not just the primary markets that are attracting the interest of office developers across the state.
Drawing on Yardi Matrix data, we reviewed office development between 2014 and 2019 in 10 California cities with populations of less than 300,000 residents. The report tracks each city’s evolution during the five-year period in terms of the:
- total number of properties built that are larger than 25,000 square feet,
- overall square footage that the new properties added to the existing inventory, and
- main use types.
To determine which city favored large-scale projects, we also looked at the ratio of buildings less than or greater than 100,000 square feet in each location. Finally, we highlighted projects that are currently in the pipeline—up to and including the second quarter of 2020.
Keep reading to find out more about our methodology and details about the cities that made our list.
California Developers Focus on Large-Scale Projects; 96% of Office Deliveries Since 2014 Greater Than 100KSF
In the last five years, the 10 cities on our list added a total of 30.7 million square feet of new office space to the California market. In particular, in 2018, roughly 7.8 million square feet of office space came online, with 2017 as the runner-up with 6.5 million square feet added. Most of the annual square footage increases occurred in Sunnyvale―with Cupertino taking the first spot in 2018 when the massive, 2.88-million-square-foot Apple Park was completed.
The 10 cities on our list delivered 122 properties with more than 100,000 square feet between 2014 and 2019, adding 29.5 million square feet of large office space to the California market. Roughly half of this was in Sunnyvale (7 million square feet), Santa Clara (4.8 million square feet) and Irvine (3.8 million square feet). Meanwhile, Cupertino’s office inventory grew by 72%―or 3.8 million square feet―and Menlo Park’s inventory was up 38%; but, in both of these cities, the overwhelming majority of the finished projects were owner-occupied.
Furthermore, Sunnyvale also dominated the list of top cities for office completions with less than 100,000 square feet since 2014. Five projects delivered roughly 259,666 square feet of new office space to the city, followed by Irvine with 229,200 square feet of new office space across four projects.
Creative Offices Make Up Roughly 16% of Total Deliveries
Increasingly, businesses have a widening choice of non-traditional office spaces that address their needs. By analyzing the share of various use types among office deliveries in the 10 California cities we reviewed, we found that roughly 4.85 million square feet of creative office space was completed between 2014 and 2019. That’s 16% of the total square footage of office deliveries within that five-year period. Six properties―encompassing 1.44 million square feet―were built in Santa Clara; another 2.25 million square feet―nearly half of the overall creative office deliveries―were in Sunnyvale.
Offices with R&D facilities totaled 3 million square feet across 16 properties. Most of this R&D office inventory was added in South San Francisco―roughly 958,000 square feet spread across six buildings. Also, several of the mixed-use developments that came online in the last five years―including the Sunnyvale Business Park at 860 West California Avenue or 3600 Peterson Way in Santa Clara―also feature on-site research spaces and facilities. Two additional projects in the California office pipeline―1050 Kifer Road in Sunnyvale and 17111 Red Hill Avenue in Irvine―are scheduled for delivery in the closing months of 2019 and will add 500,000 square feet of R&D office space.
Sunnyvale Office Inventory Grows by 38%, Adding 7MSF of Office Space
In 2014, Sunnyvale had 19 million square feet of office square feet in its inventory spread across roughly 195 properties, just behind Irvine and Santa Clara. But, by 2019, its office inventory grew by 38%, adding 33 properties and 7 million square feet of new office space. In fact, that’s 2 million square feet more than the amount of office space added in Santa Clara between 2014 and 2019. Of these, only two office completions―totaling 366,400 square feet―were owner-occupied; most of the projects are occupied by single tenants.
There were 28 properties greater than 100,000 square feet completed in Sunnyvale between 2014 and 2019, which added roughly 7 million square feet of new office space―the largest amount of the cities on our list.
Additionally, 2018 was the most productive of the past five years for the Sunnyvale office market; specifically, five properties were completed, totaling 2.2 million square feet of office space, most of which was done in the third quarter. Between 2014 and 2019, the city also attracted a significant amount of creative office space development―more than 2.24 million square feet—from projects such as Central & Wolfe, Moffett Place -1175 Borregas and Moffett Towers II – Building 5.
Furthermore, Sunnyvale’s office inventory is expected to grow by 750,000 square feet by the end of the second quarter of 2020. The pipeline is dominated by R&D offices, such as the 285,173-square-foot project at 1050 Kifer Road and the Peery Park office building at 675 Almanor Avenue.
The city’s push for more office space in the last few years is due to its ability to consistently attract big tech players. It once housed handheld computer-marker Palm, then Yahoo! and now Google. According to the U.S. Census Bureau, Sunnyvale recorded important percentage increase in terms of employment and median income. In particular, between 2013 and 2017, employment grew by 15% and the city’s median income shot up 36%, reaching $134,234 per year.
However, as is the case for other Bay Area cities, Sunnyvale’s housing sector has had trouble maintaining job growth and commercial real estate development. Some of these difficulties spring from its zoning code―something recent discussions over California Senate Bill 50 have been trying to address―as well as high construction costs in the region. From 2014 to 2018, the housing inventory grew by a mere 3% or 1,900 units; in the same period, the population increased by 3,200 residents.
22 Office Properties Over 100KSF Hit Santa Clara Market
Santa Clara office space inventory saw a 24% hike, going from 21 million square feet in 2014 to 26 million square feet in Q3 2019. The city added 5 million square feet of new office space across 25 projects, only three of which were properties under 100,000 square feet. Office development was particularly active in 2017 when 2.5 million square feet of office space hit the market, as well as in 2014 when there was 1 million square feet of new projects.
Roughly 1.4 million―or 29% of the total 5 million square feet of development―were creative offices. All but one of these creative offices (the 63,100-square-foot property at 4750 Patrick Henry Drive, which was completed in 2014) were built in the second half of 2017.
For instance, graphic processing unit-maker Nvidia completed its 496,500-square-foot headquarters at 2788 San Tomas Expressway, dubbed Endeavor, in October 2017. The LEED Gold-certified property has two main stories and a third-floor mezzanine, topped by an undulating roof of more than 200 green triangles―a reference to the triangles that make up the polygons used in computer rendering. The Endeavor project had an approved budget of $375 million, but it was delivered both under budget and ahead of schedule.
Mountain View Expected to Add 1.7MSF of Office Space by End of H1 2020
Mountain View grew its office inventory by 15% in the past five years, adding 2.2 million square feet of new office space across 14 properties; 95% of the overall square footage added was made up of projects with more than 100,000 square feet.
Roughly 26% of the 2.2 million square feet built―or 571,000 square feet―is owner-occupied. Specifically, office development between 2014 and 2019 was concentrated in Wagon Wheel and The Crossings with five office projects in each neighborhood; 2014 was the most active year in terms of square footage volume with roughly 497,000 square feet.
The largest single office property built in Mountain View between 2014 and 2019 was the 245,738-square-foot 1625 Plymouth Street. Designed by award-winning architecture studio WRNS and 100% pre-leased to Google, the six-story building was completed in May and features multiple outdoor decks and a five-level parking garage.
What’s more, Mountain View is set to add another 1.7 million square feet of office space—more than any of the other cities on our list—to its inventory by the second half of 2020. The largest project in the pipeline is the 643,000-square-foot Microsoft Mountain View redevelopment at 1045 La Avenida Street in Shoreline. The Redmond-based software giant has envisioned a green building project equipped with an on-site wastewater plant and a four-acre living roof. Another property scheduled for completion by the end of 2019 is the 267,150-square-foot medical office building at 2435 Hospital Drive, part of El Camino Hospital Mountain View Campus in Cuesta Park.
Irvine Office Development Concentrated in Health & Science Complex & Oak Creek Neighborhood
Irvine added the third-largest amount of office space among the 10 California cities, growing its inventory by 4 million square feet, or 11%. The city went from 37.6 million square feet in 2014 to 41.6 million square feet in the third quarter of 2019, much of which was focused in the Irvine Health and Science Complex with 7 out of 19 properties adding up to 2.2 million square feet. It was followed by Oak Creek, which is also the location of most of the projects with less than 100,000 square feet.
Roughly 3.8 million square feet spread across 15 properties were projects with more than 100,000 square feet. Only four properties, totaling 229,200 square feet, were office buildings with less than 100,000 square feet. In Irvine, 2017 was the most active year for office space development; 1.84 million square feet of new office space was added that year.
For example, Trammell Crow’s The Boardwalk at 18691 Jamboree Road was finished in November 2017; designed by Gensler, it added 542,000 square feet to the Orange County office market. The 7.5-acre development features 5,000 square feet of retail space and spacious, 65,000-square-foot floorplans. The twin, nine-story buildings that comprise the property are joined by bridgeways and dotted with outdoor terraces.
The largest city on our list, Irvine also recorded the highest percentage growth in terms of its population and the second-highest increase in employment. Between 2014 and 2018, the center of Orange County became the home of 34,000 new residents, a 14% increase; presently, Irvine has a population of roughly 282,600 residents. Employment here went up by 13%, and the annual median income went from $87,800 to approximately $104,200.
We looked at all office properties greater than 25,000 square feet in California cities with populations of less than 300,000 residents.
Data on office square feet for each city is based on properties built or shown as completed between January 1, 2014, and November 15, 2019.
Data on office space currently in development is based on properties labeled under construction, with estimated delivery dates between October 31, 2019, and June 30, 2020.
We only included the total amount of office square feet incorporated in these properties, excluding square footage of other uses (i.e. retail, hotel, etc.).
Data extraction date: November 15, 2019.
Data source: Yardi Matrix