FRESH Perspectives: Exploring the Silicon Valley Market with Erik Hallgrimson
Erik Hallgrimson is an Executive Managing Principal at Cushman & Wakefield representing landlords and assisting with underwriting acquisitions. With nearly 19 years of industry experience and a business consulting background, Erik gives us a unique perspective on the current Silicon Valley landscape.
How would you describe the current Silicon Valley market?
I would say the market is a hit or miss at the moment. We're seeing a lot of merger and acquisition activity in lieu of companies going public, as well as an increase in internal growth. As a result, you see a lot of requirements that are consolidations of two or three companies into a larger facility. This leads us to a choppy market where we have some good property, but also new product that ends up sitting in the market.
Seller pricing expectations are very high, which is hampering new developments considering that construction costs are also currently very high. In my opinion, you just have to let the market settle out. It is difficult to effectively get around this situation with sellers holding out for more money. Their pricing expectations will have to adjust in order for a deal to happen.
How is housing and transportation influencing the market?
The market is essentially at full employment, but we keep adding jobs without adding housing to accommodate new growth. We need more multi-use product, four to five stories high to accommodate this growth. In the case of San Jose, there are a number of products that have development potential yet are not being built.
What are the challenges you see for the Silicon Valley region?
I would say the top challenges are around the entitlement process. There are a number of roadblocks preventing further growth in the market. It's causing a lot of problems and hampering any sort of upgrade to existing products and development.
What are your thoughts around remodeling versus rebuilding?
If you have a traditional office space, it probably doesn't make sense to tear it down and rebuild because the construction costs are so high right now. The ROI that you would get on remodeling your existing product would be better than building an entirely new one. If you decide to build a new product, you're likely competing in the 100,000 square foot or greater market where there is some oversupply.
What do you think the landscape will look like in the next ten years?
I think that the market will remain fairly stable in the next decade. Our growth is somewhat limited by our development constraints, but many of the tech companies are doing well and have a large breadth of customers. I think you're going to continue to see a very stable tech environment because of the worldwide demand for tech products.
The Silicon Valley doesn't have a mass transportation infrastructure. Most of the employee base, especially for tech, does not have direct access to efficient public transportation. I think that we will need to solve our housing issues and expand our transit systems in the South Bay in order to grow.
Outside of real estate, Erik enjoys playing golf, spending time with family and friends, and investing in boutique wineries. He is also involved in the community and sits on the board for Goodwill of Silicon Valley and the First Tee of Monterey County.