Bad news abounds in the local and national tech and office sectors. Not a week goes by without a flurry of headlines on Bay Area companies cutting jobs and an office building facing default. Some would call it a sign of the times. Yet I have a justifiably more optimistic view. Although the pandemic was unprecedented in our history, previous economic cycles have taught me that things aren’t always as bad as they seem.
You don’t have to look hard to find green shoots in Silicon Valley’s economy. For example, despite what you may have read about Google halting its San Jose mega-project, the company debunked that narrative when it told SFGate that “Downtown West” isn’t on hold. In fact, Google still plans to break ground on the 80–acre project this year, according to SFGate.
Mountain View-based Google is a juggernaut in terms of headcount and market capitalization and the largest private employer in Silicon Valley. The company occupied over 20 million square feet of commercial space in Silicon Valley last year, according to JLL data. Therefore, its moves are closely watched by city governments, business leaders, and Silicon Valley stakeholders.
I’m heartened to see that Google is still committed to San Jose even as it, like every other company in the U.S., examines its office needs over the next two decades. Yet that hasn’t stopped the rumors that Google may close offices nationwide amid a slowdown in headcount growth, maybe even in Silicon Valley. The company's parent, Alphabet, recently spent $500 million to consolidate its global office footprint, which includes exiting offices it hasn’t occupied and terminating lease agreements.
I speculate that most of the offices Google ends up shuttering as part of this consolidation won’t be in Silicon Valley, the site of its global headquarters. Historically, companies consolidate near their headquarters in times of reduction. And it’s not like Google has stopped moving into new offices; the company recently occupied five buildings totaling over 750,000 square feet in North San Jose, according to The Mercury News. The site of two of those buildings was “bustling” with Google employees, the Mercury News observed last month. Because Google mandates Bay Area employees to come into the office at least three days a week, I expect that level of foot traffic to be the norm at that campus.
Tech layoffs dwarfed by pandemic headcount growth
Our investors frequently ask me about all the tech layoffs we see in the news and what that means for our development project pipeline and the local economy. I understand why they’re interested; the number of tech jobs cut in the Bay Area through early May has already surpassed last year’s total, according to the Mercury News.
However, what the news usually fails to mention is the total number of layoffs that have occurred in the Bay Area this year have had virtually no impact on the region's economy. And we don’t anticipate they will. The Bay Area has an all-time high number of jobs, with 9,100 more positions than the previous high in February 2020. Santa Clara County, which encompasses most of Silicon Valley, has gained jobs for 27 consecutive months, according to the Mercury News. And the unemployment rate in the San Jose-Sunnyvale-Santa Clara metropolitan statistical area was 3.0 percent in April, 130 basis points lower than the statewide unemployment rate.
After weathering the first several months of the pandemic, Silicon Valley’s economy has soared as the region’s largest tech companies have expanded their headcounts significantly in recent years. The number of jobs they’ve cut or planned to eliminate this year pales compared to their pandemic headcount growth.
For example, Google's parent Alphabet added over 67,000 employees to its global headcount from the end of 2019 to September 2022, according to GeekWire. That headcount growth makes Alphabet's 12,000-person layoff round, announced in January, seem small. Of those layoffs, only 12 percent are in the Bay Area, showing how companies typically consolidate near their headquarters in times of reduction.
Amazon, meantime, has let go of 27,000 workers year-to-date. Yet that number is dwarfed by the company’s pandemic headcount growth — 746,000 new jobs added from the last three months of 2019 to the third quarter of 2022, according to Yahoo Finance and Bloomberg data. As for Facebook parent Meta, it’s laid off 21,000 employees since November, or about a quarter of its global workforce. Yet the Menlo Park-based company hired twice that number of people from the fourth quarter of 2019 to the third quarter of last year, according to Yahoo Finance and Bloomberg.
I could go on, but my point is that many tech companies with a significant Bay Area presence had substantially higher headcounts at the end of last quarter than at the start of 2020. The tech companies that have laid people off over the past year may have grown too quickly or overhired during the pandemic, economists and heads of think tanks told MarketWatch. Yet these same companies generally offer tangible goods and services and generate revenue, unlike the many businesses that went belly-up during the dot-com bust, according to MarketWatch.
Music, food, and drinks — good excuses to be in Downtown San Jose
The last myth I want to tackle is that downtowns in large, urban areas can’t get people back into them without an influx of folks returning to downtown offices. As the Mercury News’ Sal Pizzaro said, “It turns out that music, food, and drinks can still draw a crowd.”
We co-sponsored Urban Vibrancy Institute's block party in Downtown San Jose on Thursday, May 18, the first in a series planned around downtown.
That crowd included Pizzaro, our chief operating officer Josh Burroughs, and me, all attending Urban Vibrancy Institute’s Downtown San Jose block party last Thursday. The area can use these events, particularly on weekdays, to get people back into downtown regularly. And we can help expand the area’s population and business base through our four ground-up development projects in our Opportunity Zone Fund II.
Contact us today to learn about how to invest in our fund.
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Real Estate Risk Disclosure:
- There is no guarantee that any strategy will be successful or achieve investment objectives including, among other things, profits, distributions, tax benefits, exit strategy, etc.;
- Potential for property value loss – All real estate investments have the potential to lose value during the life of the investments;
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Opportunity Zone Disclosures
- Investing in opportunity zones is speculative. Opportunity zones are newly formed entities with no operating history. There is no assurance of investment return, property appreciation, or profits. The ability to resell the fund’s underlying investment properties or businesses is not guaranteed. Investing in opportunity zone funds may involve a higher level of risk than investing in other established real estate offerings.
- Long-term investment. Opportunity zone funds have illiquid underlying investments that may not be easy to sell and the return of capital and realization of gains, if any, from an investment will generally occur only upon the partial or complete disposition or refinancing of such investments.
- Limited secondary market for redemption. Although secondary markets may provide a liquidity option in limited circumstances, the amount you will receive typically is discounted to current valuations.
- Difficult valuation assessment. The portfolio holdings in opportunity zone funds may be difficult to value because financial markets or exchanges do not usually quote or trade the holdings. As such, market prices for most of a fund’s holdings will not be readily available.
- Capital call default consequences. Meeting capital calls to provide managers with the pledged capital is a contractual obligation of each investor. Failure to meet this requirement in a timely manner could elicit significant adverse consequences, including, without limitation, the forfeiture of your interest in the fund.
- Opportunity zone funds may use leverage in connection with certain investments or participate in investments with highly leveraged capital structures. Leverage involves a high degree of financial risk and may increase the exposure of such investments to factors such as rising interest rates, downturns in the economy or deterioration in the condition of the assets underlying such investments.
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