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CoStar Market Insights: Santa Clara Emerges as Most Viable Landing Site for Amazon’s HQ2 in South Bay Market

Silicon Valley Ranked Among Top Three Locations Based on CoStar Analysis of Tech Giant RFP
September 29, 2017
Jesse Gundersheim is a market economist with CoStar Market Analytics covering the San Francisco region.
Jesse Gundersheim is a market economist with CoStar Market Analytics covering the San Francisco region.
Most prognosticators have overlooked the Bay Area as a potential landing site for Amazon’s HQ2 campus, citing the region’s high cost of living and office rents.

Although valid, these cost concerns have not deterred the world’s largest technology companies and Amazon competitors, Google, Apple and Facebook, from continual expansion in the region for good reason. Silicon Valley remains the mecca of global tech talent. High-skilled tech workers continue to flock to South Bay, one of the few markets in the country where Amazon could immediately find a workforce with the skills needed in mass to establish a second headquarters.

Using Amazon’s Request for Proposal and CoStar’s unparalleled database of commercial real estate information, the CoStar Market Analytics team developed a ranking of potential Amazon HQ2 destinations among metros with more than 1 million people.

The rankings weigh the percent of a metro’s population holding a bachelor’s degree or higher, the total number of computer and mathematics jobs in the metro, the rate of tech-related job growth from 2013-2015, the total amount of proposed office space tracked by CoStar, the average price/square foot of office properties in the metro based on CoStar sales data, and the affordability of the metro based on CoStar apartment rental data.

The San Jose-Sunnyvale-Santa Clara metro ranked third overall in Costar’s study, following San Francisco-Oakland-Hayward, and Atlanta-Sandy Springs-Roswell.

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Amazon has already recognized the value of operating in the South Bay region where the company leased a pair of office buildings in the metro this year: Sobrato’s new 214,000-square-foot building at 2100 University Ave. in East Palo Alto, and Jay Paul’s 350,000-square-foot Moffett Towers II under construction in Sunnyvale. Additionally in San Francisco, Amazon leased 175,000 square feet at 525 Market St.

Related's 240-Acre Santa Clara Project Offers Large Development Opportunity

Santa Clara is perhaps the most viable landing site for Amazon’s HQ2 campus in the South Bay market. North of Levi’s Stadium, The Related Companies is developing a 240-acre, mixed-use project approved for a 5.7-million-square-foot office campus. One mile east on Tasman Dr. another 50-acre site once slated for a new Yahoo! campus could provide an additional 3 million square feet.

Development of these two Santa Clara sites could be supplemented with the immediate occupancy of several vacant office buildings along Great America Parkway.

Downtown San Jose also fits Amazon’s requirement for access to mass transit, as well as proximity to major highways and an international airport. If Google’s negotiations with the city of San Jose for a downtown office campus surrounding Diridon Station were to break down, Amazon could potentially move in and capitalize on the plan.

Google’s proposed campus size -- up to 8 million square feet -- just happens to exactly match Amazon’s HQ2 total space requirement. San Jose also would be a cheaper alternative to the high-occupancy suburban submarkets further north in the South Bay market.

Amazon said it prefers markets with the potential to attract and retain strong technical talent. The South Bay’s concentration of tech talent simply cannot be matched. Amazon may seriously consider locating its HQ2 campus in the heart of Silicon Valley, where talent and innovation overshadow the market’s premium costs of office space.

CoStar Market Insights is a new feature providing a snapshot of recent real estate trends. The CoStar Market Analytics team monitors commercial and multifamily real estate across 206 metro areas, with a granular understanding of the projects, players and economic trends that move these markets. Learn how CoStar Market Analytics can add to your market knowledge, helping to minimize risk and maximize returns.
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