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Monday, September 18, 2017

A Bit on Buses

Discussions on traffic in Silicon Valley usually include the VTA (Valley Transportation Agency) bus system.  There is a questionable assumption that buses are the solution to the region's traffic woes.  This post is intended to set down some facts to serve as a common basis for discussion.

First of all, buses are not particularly efficient on average.   While they are very efficient per passenger mile, during rush hour, they are mostly empty during non-rush hours.  As of 2020, they average about 25 miles per gallon of fuel per passenger mile vs. cars at around 40 MPG per passenger mile as seen below:
As of May, 2020 - Source:

Nor are buses cheap.  "Fare recovery" varies a lot - for Valley Transportation Agency (VTA) in Santa Clara County it is 7% which means for every $2 they receive from fares, another $26 comes from taxes - see pie chart below:

Outside of New York City, public transit struggles to gain market share of commuting as seen below.

San Jose (upper right inset box) has 4% commuting by public transit.  San Francisco 33%

Speaking personally, I am generally for public transit. I am most definitely against GHG emissions.  I think Climate Change is an extremely serious problem - far more serious than most people believe - and it is caused by burning fossil fuels.  Nonetheless, we can't solve problems in these and other areas if we refuse to face facts or try to kid ourselves that human behavior will change to suit our preferences.


  1. Bus and light rail ridership in Silicon Valley get only about 7% of their expenses from fares.
  2. Ridership on bus and light rail is declining locally and nationwide.
  3. People are driving more.
  4. Self-driving (autonomous) vehicles cannot be relied upon to solve traffic or land-use problems.
  5. Millennials are moving to the suburbs and buying SUVs.
The implications of Silicon Valley's VTA (valley Transit Authority) 7% Farebox recovery need to be emphasized.  The remaining 93% of costs are dependent on taxes which do not change if ridership changes.  That means that even if ridership on VTA doubled the increase in revenues would only be an additional 7%.  This would allow a route with 20 buses a day to have 22 buses a day.  Barely noticeable.

There is no more money available for public transit so low fare recovery means buses are not viable in most US cities.  Even if public subsidies for buses were doubled, it would at best add another 4% to the current 4% of Silicon Valley commuters.  8% taking public transit (up from the current 4%) doesn't do much.

An idea circulated that if density increases in an area it would result in more buses being run to accommodate the increased potential ridership.  This is false.  Since 91% of bus costs are subsidized, running more routes in one place does not generate more revenue but instead costs even more money.  Since there is no tax money currently available to expand routes, more buses running in one area means fewer buses running in another area.

Farebox Recovery

One of the first things to understand about public transit is that it depends heavily on subsidy - usually taxes of one sort or other.  "Farebox (or Fare) Recovery" is the term used for what percentage of transit costs are covered by fares paid by riders.  A "fare recovery" of 40% means that for every $100 bus companies spend, $40 comes from fares paid by customers with the remaining $60 (in this example) paid by subsidies.  Around the world "fare recovery" is almost always much less than the costs.

The following chart shows that only a few public transit systems worldwide do not need subsidies.  Most get less than 50% fare recovery.  (Click on chart to enlarge)

Public Transit Needs Subsidies

As can be seen above, the city of San Francisco overall is under 40% "fare recovery" meaning that for every $10 in costs, less than $4 is paid by riders - more than $6 is paid by taxpayers (who may be riders).  This is a little better than Amsterdam and a little worse than Boston. (click graph to enlarge).  NY City is the best in the US at 50% fare recovery.  As shown below, fare recovery for VTA (Santa Clara County's bus and light rail system) is slightly under 9%.

The only four systems that do not require subsidies are Hong Kong, extremely densely populated, Tokyo, very spread out (making driving unappealing) as well as densely populated, or like Delhi poor (so few riders have an alternative) and dense and spread out.  New York City has the highest fare-box recovery in the US at around 50% (between Paris and Stockholm) - it is also the most densely populated city in the US.

In much of the world, local buses are a way to avoid congestion in narrow streets of cities that grew up over 1,000 years or more.  Subsidies to public transit are a way of avoiding other unacceptable or impossible street changes.

Widen Streets to Allow More Traffic?

In poorer countries, public transit is a necessity for people who otherwise could not get to work as they can't afford a car.  Cities could not function in poor countries without public transit.

Can't Afford a Car - Take a Bus

The following chart shows bike-share programs in green, public transit in light blue. (click on graph to enlarge).

Public Transit (Even Bikes) Need Subsidies
LA's Bike Share Program Shown in Orange
The above chart shows even bike-sharing programs typically lose money.  VTA fare recovery of 9% is better than Austin's - barely - and worse than Detroit's.  BART shows up well but it is only one part of the SF Bay area transit system, more than made up for by the low numbers for VTA and other bus systems in the area.  Chart from:

VTA has one of the lowest fare recovery of any major population center in the world.  Only $36M comes in from fares, to pay for part of the $413M expenses - a fare recovery of about 9% - see graphic from the VTA annual report below (click graphic to enlarge):

What 9% fare recovery means is that for every $2 fare, an additional $20 is chipped in by VTA from taxes (79% of revenue from sales tax) from a variety of government agencies.  In earlier years fare recovery was closer to 12%.  For comparison, SamTrans (San Mateo Transit System) has a fare recovery of 16.5% meaning that for every $2 in fares there is a subsidy of $10.  AC Transit (Alameda-Contra Costa County Transit) has a 14% fare recovery meaning that for every $2 fare, there is a $12 subsidy.

SamTrans and AC transit info from: and

In the case of VTA, the reduced fare recovery is due to decreased ridership.  From the 2016 VTA Annual Report:

"... public transit agencies throughout the country experienced declining ridership in 2016. VTA experienced an overall decrease in ridership of 8.9%.  The decrease is attributed to several external factors including weather, construction, low gas prices and private ride sharing services and corporate shuttles."  I.e., corporate shuttles like Google's and Apple's are taking away business from public buses.

Google Shuttle Replacing Public Transit
Google Inc. employees board a bus that will take them to the company's campus, in Mountain View, from San Francisco
So are private for-profit services like Uber and Lyft and private shuttles. One private shuttle available to the public is "Chariot", recently bought by Ford Motor Co.  Chariot runs direct or express routes to shorten commutes.  (click  photos to enlarge).

Private Shuttles Bypassing Public Transit

"According to a 2016 Shuttle Census ...ridership on private and public shuttles in the Bay Area increased by 45% from 2012-2014 to a total of 9.6 million passengers in 2014."  (VTA FY1819 Budget, ibid) The effects are seen in the following graph from the VTA budget report:

Bus Ridership Down - County Employment Up

"Overall, VTA’s FY 2017 system ridership (bus and rail) decreased by 11.0% from the previous year. Bus ridership totaled 29.1 million, a 9.7% decrease, and light rail ridership totaled 9.1 million, a 14.8% decrease." (from FY 2018-2019 Annual Budget).  That is in addition to the FY 2016 decrease of 8.9% noted earlier.

This is broken out in the following two charts for weekly boardings showing bus and light rail.  Note that Fiscal Year 2019 ended June 30, 2019, so these charts reflect a 12-month period for 2019.  Clearly, bus ridership is dropping, and light rail ridership is dropping even faster.  Both are at their lowest point in 10 years:

Ridership: Buses Down, Light Rail Waaay Down

San Mateo Transit is even worse:
page 71
The chart above starts from 2008, but the decline goes back even further as seen in the 1999-2013 graph below:

VTA's fare recovery is one of the lowest of "peer agencies" according to VTA (thick red line on bottom of graph) as seen below:

Fare Recovery Rising/Flat In Peer Agencies - Falling for VTA
The above chart is from a VTA run blog.  The highest fare recovery shown above is San Francisco MUNI railway at around 33%.

One comment to that VTA blog post may reflect some of the reasons for the downward trends:

"I rode a VTA bus and walked A LOT from 1997 to 2004. There were countless number of times that the #23 did not show up or was very late. I was also a late evening rider who wonder if I would make it home, even on the #22 that ran all night. I was so happy to buy a car in 2004. That was because of poor connections between VTA buses, no show buses, and wondering how I would get home on weekends when I when 15 miles from home."

On Time Performance is shown in the charts below from VTA's Budget for FY 2018-2019, pg 113.  In FY 2017, buses were on time about 86% of the time (up a little),  light rail about 84% (up from 77% prior two years).  (Click graph to enlarge)

You can't always easily get where you want to go by bus.  Commuting between two locations in NYC illustrate this.  20 miles by Car takes 40 minutes to 1 hour 5 minutes.  By bus takes 1 hour 34 minutes.  Both the following maps are for 8 AM on a Monday.  The first one shows the bus routes.  Three buses needed = two transfers with a total time of 1 hour and 34 minutes minimum.  This clearly illustrates that public transit in NYC requires going to the Central Business District (CBD) first since that is where the most usage is and buses need to go where most people want to go in order to get any economies of scale.

Brooklyn to Queens by Way of Manhattan
20 miles = 3 Buses = 1 hour 34 minutes

The second one shows driving between the same destination.  Depending on traffic and route it can take 40 minutes to 1 hour and 5 minutes.  Even in the worst case it is faster to drive.  The 20 mile route is too far for biking (for most people) which at 10 miles per hour average would take two hours.

Brooklyn to Queens by Car
20 miles in 40 minutes to 1 hour 5 minutes
Sunnyvale to Mountain View has the same problem.  Going from a house near Fremont and Saratoga-Sunnyvale to Google's offices in Mountain View can take 1 hour 8 minutes by bus or 27 minutes by car, even at 9:40 AM with bad traffic - see below:

Sunnyvale to Mountain View By Bus
Minimum time is 1 hour 7 minutes by bus
Sunnyvale to Mountain View By Car
Minimum time is 27 minutes with lots of traffic in Red and Yellow (traffic delays)
Note: There was discussion a few years ago of closing off to cars 2 lanes (one in each direction) on El Camino for Bus Rapid Transit as a way to improve transit times and therefore ridership.  I looked into that here: .

BART Ridership Rises with Employment

BART is doing better.  BART ridership has generally risen and fallen along with employment in the SF Bay area as seen below.

This rise in BART (heavy rail) and decline in buses is not unique to the SF Bay area.  Exactly the same thing is happening in NYC as seen in the following chart from a NYC Transit Authority blog:

NYC Ridership - Subways Up - Buses Down

This continues a trend since the end of WW-II when the post-war economic boom enabled everyone to buy a car.  Public transit declined significantly overall, particularly light rail, but heavy rail pretty much held steady as seen below - green is light rail, blue is bus, red is heavy rail (click graph to enlarge).

1917 to 2010 Transit Ridership Per Capita
The hope among some that more urban living would mean the end of cars is not borne out even in NYC - the most densely populated city in the US with the best public transit system.  In NYC 61% of commuters use cars, only 27% use mass transit to get to work:

NYC Commutes - Cars 61%, Mass Transit 27%
From a climate change standpoint we need to get to zero GHG emissions.  61% is not zero. The only real solution for GHG emissions is 100% electric vehicles.  This could happen as early as 2030.  I cover this in

Autonomous (Self-Driving) Vehicles

There is now the hope (expectation?) that Autonomous Vehicles (AVs) will mean the end of individual car ownership.  This is all to the good as safety will be greatly improved.  Another hoped for possibility arising from this is driver-less taxis.  Since the driver is the most expensive part of Uber-Lyft type of taxi service this should lower expenses so that no one needs a car.  Everyone will (supposedly) hail a very inexpensive self-driving vehicle and forget the expenses and hassles of individual car ownership. This is called Cars as a Service (CaaS).  That supposedly will free up incredible amounts of space and funds for nicer things than parking lots.

Maybe.  Peak usage at rush hour requires a lot of cars and the costs of those cars have to be recovered over the entire day.  The question is what density of population do you need to keep overall costs at an acceptable level?  We won't know until we try, but Lyft has announced suspension of their car-pooling outside of San Francisco:

In dense cities there are lots of people going lots of places throughout the day.  Distances to destinations aren't very far within the city.  Lots of riders all day long lowers the per person cost of those vehicles.  A car dropping off a passenger at one place doesn't have to wait very long or go very far to pick up another passenger.  Service should be quick and low cost.

Where Cars-as-a-Service Will Work
NY City

In farming areas there are hardly any people so a car-less society won't work there.  No rush hour to deal with and long distances between destinations mean Cars-as-a-Service will be neither quick nor low cost.

Where Cars-as-a-Service Will NOT Work.  

In between - suburbs and smaller cities?  Who knows? We can guess that CaaS will work in denser suburbs but not as well (i.e., more costly) in less dense suburbs.

Cars-as-a-Service Might Work(?)

Also, we really don't know when Autonomous Vehicles will be available.  We see all sorts of estimates typically between 2020 to 2032 ( but some predict not until 2050  It would be best to wait until we have them before we start redesigning our cities around the belief they will be here "real soon now".

One possibility is that AVs will eliminate bus drivers.  In FY 2017, out of a $426M total expenses, VTA spent $307M (72%) on labor (pg 51 & 54, VTA FY1819 Budget).  Not all employees are bus drivers but Electric Vehicles (EVs) also require far less maintenance so maintenance staff will be smaller.  A large part of the costs of public transit would disappear with AVs which are also EVs.

The end of buses?  Certainly the end of big bulky buses on fixed routes.  Even if buses survive they will have dynamic routes driven by demand.  Buses the size of mini-vans might come to passengers in on-demand car-pooling instead of people needing to find a bus stop and wait for a scheduled time.

We don't know how much of an impact CaaS will have.  If people were purely rational about costs of transport certain car makers wouldn't exist.  We can't assume everyone is solely concerned with lowest cost.
Replace me with ride sharing?

People Driving Less?

In 2011, a Public Interest Research Group study suggested people were driving less but "[the] study examined multiple variables—population density, median household income, frequency of working from home—and found only a rough correlation between more urban populations and lower VMT.

"Nationwide, urban residents drive about 9,930 miles per year, while rural residents drive an average of 14,850 miles."  California's VMT/person is a little lower than average but not by much. See chart below from:

We should also look at fuel economy per passenger mile since that equates very closely with GHG emissions (click to enlarge):
What we see above is that transit buses are one of the most inefficient users of fuel at effectively 32 miles per gallon per passenger.  This is less than light trucks and cars.  The reason is that while buses may be packed at rush hour, people won't take them at rush hour unless they know the buses are also available at off hours.  So most of the time, buses are running at 25% of their capacity or less.  cars are often single passenger but they also take kids and entire families places so miles per passenger are better.

Buses are essential to provide transport to many people who for excellent reasons don't drive cars.  They are important to ease congestion during rush hour.  The subsidies provided them are necessary for those and other reasons.  But buses shouldn't be romanticized as the one big solution to any problem. They are just one part of a transport complex with good points and not so good points.

Millennials Are Just Like You and Me!

A few years ago there was talk that "millennials" are different and preferred urban environments and walking to work and public transit.  In 2007 we saw car Vehicle Miles Traveled (VMT) turn down for a few years for the first time since WW-II.  The hope was that public transit would grow.  That started changing in 2011-2012 and we are back on an upward VMT trend both overall - blue line below - and per capita - orange line below. (click on graph to enlarge).

Vehicle Miles Traveled Rises to New Record
VMT per Capita Near Previous Record
It turns out Millennials aren't different - they were just broke from college debt and the Great Recession.  Now that's over they seem to be following in the footsteps of earlier generations and getting SUVs to commute to their house in the suburbs.  About 42% of home buyers are Millennials - 83% of home buyers' first choice is a single family house - only 20% will also look at townhouses - and it goes down from there.  This means more suburban sprawl.  Whatever you think of sprawl, it is a fact of life.  Most people (by no means all) want detached homes and the main way to get that is to move to the suburbs.   We have to deal with people as they are, not as some might wish them to be.

"Generationally speaking, the stereotype of millennials as urbanites falls flat when it comes to home-ownership. The Zillow 2016 Consumer Housing Trends Report found that 47 percent of millennial homeowners live in the suburbs, with 33 percent settling in an urban setting and 20 percent opting for a rural area".  That means only 1 out of 3 millennial homeowners prefer cities.  That happens to be NYC's proportion.  Out of 24 million people in the NYC consolidated statistical metropolitan area 8M live in NYC proper, 16M live in the suburbs.  I.e., 33% live in NYC proper, and 67% live in the suburbs.

Numbers add to more than 100% because several options are looked for.
Car makers were so afraid of millennials' "..indifference toward cars that there were worries about whether they would all end up getting driver's licenses."

Things have changed.  "Erich Merkle, an economist with Ford, says that as millennials cross the threshold into family life, they're buying large SUVs."

Millennial Families Like SUVs

“The future is very bright for SUVs,” Autotrader senior analyst Michelle Krebs said. “Our surveys show 40% of car buyers say an SUV is their dream vehicle, and owners become very loyal to the segment once they get their first SUV.”

and from:


No one knows the future but it is a pretty good bet that human behavior will not change and that technology will change.  We need to focus on the aspects we know we can change.  Buses are necessary for many people and are deserving of support but they are not the solution for many people.  They most definitely do not solve GHG emission problems.

Chevy Bolt - 238 Miles (EPA) on a Charge - Since December, 2016
Electric cars and trucks will be needed to remove GHG emissions from transport.  They are here now and getting cheaper with longer range every year.  More models are being announced by more auto companies monthly.  (c.f., ).  

Proterra 100% Electric Bus - 1101.2 miles on a single charge
To generate the electricity needed to replace all the oil currently burned we will need a lot more electricity.  Solar panels on all new construction would put the solution on those who cause the problem.

Hoping for a change in human behavior can lead to inaction on real possibilities for real change. At a critical period in the fight against global warming we can't succumb to wishful thinking.

For all VTA budgets for the last 10 years go to:

Saturday, September 9, 2017

Silicon Valley Office Space: (Glut?)

On a local level we have a large supply of commercial office space in some parts of Silicon Valley, though it varies from city to city.  A recent article titled 

"Silicon Valley is becoming a commercial real estate disaster"

in the business journal BusinessInsider raises some question as to the reasons for building more office space.  Although some parts of Silicon Valley have high demand for commercial office space, other cities have a four-year to eight-year supply.  Charts below show this clearly. (click on any one to enlarge).

Millions of sq. ft. of office space available (red-blue line) and not much being leased (beige line).

In terms of how many years it would take to absorb all this office space divide the SF available for lease with the lease rate.  Results shown below.

The total available is seen in the next graph.  The amount available for lease is a large fraction of the total space (leased and available) - 30% in North San Jose.

Local employment seems to be weakening.  That and the future expansion of Apple and Google office needs to San Jose, suggest skepticism about further office development in the northern part of Silicon Valley. (click graph to enlarge).

Before we get to far into local stuff, let's take a quick look at national trends since they affect Silicon Valley and the SF Bay Metro Area.


On a national basis, we have 'interesting' articles such as -

"Vultures Begin to Circle Commercial Real Estate"

Some excerpts -

“There’s a drop coming just like when you get to the top of a roller coaster,” said Michael Shah, chief executive of Delshah Capital, which is planning to raise a $200 million fund to focus on distressed opportunities." 

Steinway Building in NYC - Not built yet but already "distressed"
"Some developers who broke ground a few years ago when markets were booming are now running into problems because costs or sales aren’t living up to projections."

On a national basis we see the commercial office space pricing has peaked and may be headed for a downturn:

In fact it looks like we have exceeded the 2007 bubble peak substantially in $ terms (blue line in graph below).  Even adjusting for inflation (dashed red line below) we are above that bubble level.

The rise in real estate rents looks very much like a repeat of the 2007 bubble and seems widespread across four major types - apartment, office, industrial, and retail as seen below: 
Indices in graph above are adjusted for inflation.

From Boston Federal Reserve we see that prices for commercial space is the highest since at least 1975.

While at the same time, commercial bankruptcies increase. (click on chart to enlarge).

But what about Us!?

The health of commercial office space in Silicon Valley is well studied on a frequent basis since a lot of money is involved.  It is of special interest in terms of Sunnyvale's plans for downtown and El Camino Real.

In the chart below, we see employment growth slowing in a trajectory that suggests net reductions in employment may be coming.   The blue bars show total employment, the green line shows the change in Silicon Valley employment, and the red dashed lines show the US change in employment.  The key point is that the rate of increase in Silicon Valley employment is declining, looks like it will hit zero, and perhaps go negative (= job loss).  (click on chart to enlarge)

Silicon Valley Employment - From Bureau of Labor Statistics via Savills-Studley
The above includes San Mateo and Alameda Counties.  Another chart shows a net employment loss of 2,000 over the previous 12 months in Santa Clara County in line with the downward trend.

North San Jose has enormous availability.  Sunnyvale/Cupertino not too much, but Santa Clara has a lot of available space.  Santa Clara is an easy bike ride from Sunnyvale/Cupertino so we might expect some contagion. In addition, we need to consider what the effect on existing Sunnyvale and Cupertino commercial space will be once Apple opens up their new 2,800,000 sq. ft. headquarters for 12,000 employees.  One assumes that as leases expire, Apple will be moving more and more people into that.

2.8 Million sq. ft. - 12,000 employees
Not to mention their projected new campus in San Jose with nearly 4 million sq. ft. possible - more if they get some rezoning.

Availability rates are shown below from a detailed analysis of Silicon Valley by Savills-Studley.  It shows Silicon Valley as a whole is doing better than the US average of empty offices but North San Jose has the equivalent of nearly 1 building in every 3 empty, Santa Clara and Milpitas over 1 in every 5 empty.  One can't help but wonder why there is so much building in the North valley when there is so much office space available in San Jose which is closer to where most people live.

Office Rent$:

The next graph shows $ rent/sq. ft.  Naturally, office rents are generally (not universally) lower where the office vacancy is higher.  Most Silicon Valley towns have rents well above US average office rates.  On the one hand this is a sign of a healthy market, on the other hand it means that companies under financial stress have another reason to leave the SF Bay area.  Note that the highest rents are in the hardest to get to areas, least served by mass transit or highways because they are bounded by the Bay on one side and the Santa Cruz Mountain foothills on the other.  Apparently, many companies are so flush with cash they can afford to pay much higher rents in the more expensive areas.  This makes commutes worse for the majority of workers who can't afford to live there and don't live near a corporate bus route or for a company that provides corporate buses,

$ Per Sq. Ft of Office Space

As a little side note, one thing that jumps out at you is that office rents in Menlo Park and Palo Alto are roughly three-and-a-half to four times higher than those in right-across-the-bay Fremont.  Apparently Facebook, et al. are willing to pay a lot extra to make sure their engineers have the joys of commuting across the narrow bridge. (click graph to enlarge)

Should there be a recession, there will be movement towards cheaper office rents and availability rates.  This would result in companies moving to less expensive Santa Clara and San Jose from Mountain View and Sunnyvale.  The difference between class A space and class B and C is largely appearance.  Class A has large impressive lobbies, high (hard to heat and cool) ceilings - and lots of room for cubicles or "open office" space.  Class A space gets vacated quickly when the economy turns down as companies look for class B or C space.

Projections of office-using job growth shows San Francisco metro area down a little from the middle of the pack - slightly below Boston and Seattle, and slightly above Orlando and Detroit.

From Are We Overbuilding "Tier-2 cities will emerge as the new growth leaders in the cycle as businesses expand into markets where workers are easier to find and less expensive to hire."

From Cushman and Wakefield's "Are We Overbuilding?"

A quarterly report from Colliers International for Silicon Valley shows a detailed breakdown of office space availability as seen in the chart below.  The graph below shows office "availability" (= % of office space available to lease) rising in all key Silicon Valley cities for the first time in years.  It is still pretty low in Sunnyvale but the trend is the wrong direction for further expansion (click graph to enlarge):


This showed up particularly in what is called "R&D/Flex" office space - quoting from Colliers:  "Sunnyvale posted lackluster results in 2016. R&D gross absorption slowed by more than 50 percent from 1.3 million square feet in 2015 to 659,421 square feet in 2016. This ended a six-year streak of annual demand greater than 1.0 million square feet in Sunnyvale’s R&D market." (page 12)

This sub-set of Silicon Valley commercial space shows a net negative absorption of space - meaning more became available than was absorbed - for the first time in years as the amount of R&D space available grew.  Simply put - R&D office space Availability (Vacancy) is UP,  Absorption is DOWN

Other types of commercial space were both up and down depending on the type.  In one type, Sunnyvale did quite well, stemming from Google's deal a few years ago for some office space in N. Sunnyvale

Some suggest that Chinese conglomerates have been investing unwisely and creating a real estate bubble.  The Chinese government has been successfully putting a halt to some of that, but it comes at a time when the commercial real estate market is already weakening.  Asia (mostly China) has become a much bigger investor in US commercial real estate than in previous years.  That is tapering off now. (click on chart below to enlarge - dark blue is Asia):

"...China’s big property acquisitions are likely to get much scarcer, with US and European banks less eager to lend to Chinese conglomerates; with Chinese banks under pressure to reduce their vast exposure to the conglomerates and their precarious deals at peak prices; and with Chinese authorities determined to stem the capital outflows. And this could hit the already wheezing commercial real estate bubble in the US at the worst possible moment."

As a result, we are seeing a noticeable decrease in average leasing prices across Silicon Valley for the first time since 2011 - and a bigger drop than at that time. (click image to enlarge).

The immediate future is turning negative:
"...we are likely to experience an increase in vacancy and availability rates during 2017. Colliers is forecasting that the office availability rate will increase to 14.5 percent by year-end, a significant uptick from the 10.6 percent availability rate we opened the year with." (from Collier's, ibid)

Venture capital investment in new companies is decreasing:
"Mid-stage companies are struggling to raise B/C rounds. Many late-stage firms are delaying IPOs and some are taking on debt from private equity rather than face a down round. According to VentureBeat, investors placed $16.5 billion into 1,797 startups during the first quarter of this year, below the $18.7 billion placed in 2,366 startups in the first quarter of 2016.  Companies that cannot raise funds are delaying expansion plans". From Savills-Studley, ibid.

How Much Office Space?

The Savills-Studley report shows that Santa Clara has the most office space at 14.3 million sq. ft., followed closely by Sunnyvale-Cupertino at 13.9 million sf.  Central San Jose and North San Jose combined have a total of 21.3 million sq.ft. but those two locations in San Jose are considered separate job centers.  See chart. (click chart to enlarge):

More interesting is who has the most available?  That is expressed in the following chart which shows how much is available (dark bars) and how much was leased in the last 12 months (light bars).  This makes it pretty obvious that not much office space is being leased and there is a lot available.  As mentioned above, Colliers predicts availability will increase substantially over the next year.

To see this in perspective, here's a graph showing how long it would take at current rates to soak up all the currently available office space if no more office space is built.

How many years to absorb all the office space now available at current rates
Over eight years to absorb all the office space in North San Jose.  Eight years, even if not another square foot is built and not a single tenant leaves their current office.  Four and five years, respectively, to absorb all the available office space in Central San Jose and Mountain view.  Three years to absorb all the office space in Santa Clara.  And yet plans continue to to keep building more.

Against this we observe the decision by Amazon to find another city to locate a second headquarters. Amazon apparently decided that incessant office expansion and increased hiring of highly paid employees increases the costs of housing and puts pressure on expensive transit systems.  There appear to be limits to how large and how fast cities can grow.  Amazon is looking for another metro area where there is room to grow.  "Spreading the (jobs) wealth", so to speak.

We also need to consider that the one of the longest economic expansions in the history of the US may be coming to an end.  If that happens, we hope for a "soft landing".  It is starting to look a lot like the 2000 dot-com bubble.  (click chart to enlarge)

See also -


Google and Apple are planning expansion in and near downtown San Jose.  They are doing this because traffic is making it impossible to hire not only more engineers but support staff - personnel, accounting, maintenance, etc., etc..  In light of this we have to ask - is it wise to build more office space in north Silicon Valley - especially in the face of a possible recession?


For those really curious about the details of office space in Silicon Valley, below is the complete table from the Savills-Studley report, including Campbell, Morgan Hill, etc.  (from: )  Click on table to enlarge.