A research and development campus spanning nearly half a million square feet has hit Silicon Valley's sale market, the latest high-profile listing to test the region's valuations and demand.
MetLife Investment Management, the national insurance giant's asset management arm, has listed a five-building campus in San Jose, California, the price for which has yet to be publicly disclosed. Located at 3050 Zanker Road; 2840, 2860 and 2880 Junction Ave.; and 411 East Plumeria Drive, the listing — which is being marketed by Cushman and Wakefield, according to brokerage materials — is just shy of 40% occupied with two of the five properties fully leased.
Semiconductor manufacturing company Broadcom leases the entire building at 2880 Junction Ave. measuring roughly 80,000 square feet as part of a deal that runs through June 2026. Mediatek, another semiconductor company, occupies all of the nearly 79,750 square feet at 2840 Junction Ave., according to CoStar data, as part of a deal that extends through February 2027.
MetLife acquired the Montague Point buildings as part of a $704 million, 11-property portfolio deal it closed in late 2015, according to the data. Along with the San Jose campus, the purchase also included properties in Chicago, Dallas, San Diego, Atlanta, and Arlington, Virginia.
The buildings were all developed in the late 1980s on more than 23.6 acres in Silicon Valley's largest city.
Neither MetLife nor Cushman & Wakefield responded to CoStar News' requests to comment.
Clouded Pricing
Similar to other pandemic-pummeled markets across the United States, office property values in the San Francisco Bay Area have been slogging through a reset period as higher interest rates, a difficult financing environment, and softened demand for space have made it challenging to price deals.
Silicon Valley has been largely insulated from some of the challenges plaguing nearby markets such as San Francisco. However, a worrisome combination of widespread layoffs, depressed leasing activity, and overall economic uncertainty has spooked potential buyers.
In the greater San Jose area, investment sales activity has slowed within the past year to about half its long-term average. In the earlier years of the pandemic, top-tier, newer properties with solid tenant lineups were selling for upward of $1,000 per square foot. That level of demand and confidence in the tech-concentrated market buoyed prices at record-high levels, according to CoStar analysis. However, the stew of macro and local economic challenges has meant no such deals have closed so far this year.
This past summer, social media giant LinkedIn landed a buyer for an office building near its Silicon Valley headquarters among a series of recently closed deals that have underscored dwindling valuations and a depressed sales climate that has now spread to the tech-concentrated area. The $23 million price tag was only slightly above the $22.4 million the Microsoft-owned company paid for the Sunnyvale, California, building at 880-888 W. Maude Ave. in late 2015.
What's more, continued uncertainty surrounding weak tenant demand, a pipeline of speculative developments and the general economic slowdown are expected to further challenge both the strength of the Silicon Valley real estate market as well as its property valuations.
Since this time last year, buyers have collectively closed nearly 90 office deals valued at about $1.1 billion, according to CoStar data. The region's five-year annual average is just shy of 190 deals totaling about $3.5 billion.
Thanks to its proximity to some of the world's most powerful venture capital sources and renowned talent pool, however, demand for high-quality research and development space is a bit of a different story.
By the end of the second quarter, the vacancy rate among Silicon Valley's office and research and development properties was about 11%, far lower than the past recession high of roughly 19%.