Silicon Valley is betting on new transportation to counter the rise of remote work

Developers are ramping up new office projects in Silicon Valley, confident that big tech companies will expand their jobs and benefit from new transportation and housing initiatives in the area.

In San Jose, California alone, three developers are implementing office projects, despite the fact that they have signed few or no leases in advance. Google alphabet Inc. is planning a new 80-acre mixed-use complex where city officials say work will begin on infrastructure for the project by next year. Meta Platforms Inc.'s Facebook and Apple Inc. are also expanding their space in Silicon Valley, according to real estate brokers.

San Jose's new office complex sets it apart from other major cities where developers are holding back until it becomes clearer how the hybrid work world will affect demand for workspace.

Boston Properties Inc. resumed construction earlier this year, which it postponed after the pandemic began in 2020. "You don't see, other than our San Jose project, we're announcing major office developments at this point," Douglas Linde, president of Boston Properties, said in a May revenue call.

From desired residences to major commercial transactions.

Overall, developers added about 1.6 million square feet of new office space in Silicon Valley during the first quarter of 2022, up about 46% from the first quarter of last year and more than twice as much as in the first quarter of 2020, according to real estate firm CBRE Group Inc.

San Jose is becoming increasingly popular because the city faces two of the biggest challenges facing Silicon Valley: a lack of affordable housing and traffic.

"We have a growth-oriented mindset here," San Jose Mayor Sam Liccardo said.

Vancouver, British Columbia-based developer Westbank Corp., for example, recently began work on the first phase of development, which requires 3 million square feet of office space and 2,000 to 2,500 residential units, according to Andrew Jacobson, head of the U.S. development firm.

Is solving problems with affordable housing and traffic enough to bring workers back to the office? Why or why not? Join the discussion below.

The office space will be a 12-minute walk from the apartments, allowing tenants to offer their workers traffic-free travel. "If you're not going to offer something that fits their lifestyle, why should they go back to work?" said Mr. Jacobson.

Google's planned development, adjacent to Diridon Station, San Jose's main railroad depot, will include 4,000 residences, as well as 7.3 million square feet of office space, 15 acres of parks and a community center.

Silicon Valley cities are also investing in public transportation. The Bay Area rapid transit system, known as BART, plans to expand to the city of Santa Clara via Diridon. Caltrain's commuter line is halfway to the project to switch to electric trains powered by diesel.

San Jose is expected to select a transportation company later this year to create a new transit line, city officials say. It will likely run near or through Google's new campus, connecting Deridon Station and San Jose International Airport. Elon Musk's company Boring Co., engaged in drilling tunnels, is among dozens of firms that have expressed interest in working on the new line.

The growth of offices in the Valley contrasts with neighboring San Francisco. Both markets experience low return rates to the office because they rely heavily on tech businesses that are more willing than other companies to allow employees to work remotely.

But San Francisco faces higher rates of crime and homelessness that are scaring workers away from returning and companies from expanding, according to brokers and analysts. San Francisco also has a larger number of small startups that are particularly vulnerable to recent stock market turmoil and recession fears.

Consequently, according to CBRE, nearly 24% of vacant offices in San Francisco are almost twice as high as in Silicon Valley.

Many tech giants have continued to hire employees during the pandemic, even as they adopted hybrid work strategies, according to Colin Yasukochi, executive director of CBRE's Tech Insights Center. These companies must have enough office space to accommodate workers arriving on the same days.

"If it's Tuesday, Wednesday and Thursday, it doesn't matter if Monday and Friday are completely dark," he said. "You need enough space for these days."