Q1 2020 Silicon Valley Occupier's Guide - Research and Development

The vacancy rate across Silicon Valley increased more than 0.5% in Q1 2020,
with negative net absorption of nearly 500,000 square feet. However, with
the onslaught of Covid-19 hitting the country in early March, and aggressive
shelter-in-place orders taking effect in the Greater Bay Area in the middle of the
month, much of the local economy has ground to a halt so we are expecting
much more significant changes throughout the balance of 2020. The techheavy
NASDAQ Composite Index remains largely unchanged on a year-todate
basis, but top Wall Street investment banks are forecasting double-digit
U.S. GDP contractions for Q1 2020. With the shelter-in-place orders currently
set to expire on May 3rd 2020, but likely to be extended deeper into May or
beyond, and most Silicon Valley landlords are waiting to survey the “post
shelter-in-place” landscape before adjusting rental rates or concessions
offered to tenants. Consistent with what we have seen in past recessions
such as the correction following the Dot Com Boom in the early 2000’s and the
Great Recession in 2008-2009, we expect to see rental rate declines lag the
expected macroeconomic contraction by 1-4 quarters.