Apple’s planned “spaceship” campus in Cupertino has become an object of fascination in the tech world, but a large swath of Bay Area real estate that Apple has either purchased or leased in recent months may reveal more about the tech company’s ambitions.
The world’s most valuable tech company, Apple now owns or leases more than 8 million square feet of office space in San Francisco, Santa Clara, Sunnyvale, Cupertino and San Jose, according to CoStar Realty Information Inc. Nearly 30 percent of the square footage has been snapped up in the past year.
“It’s an amazing amount of space,” said Hans Nordby, a managing director of CoStar Portfolio Strategy. Apple’s large presence is equivalent to roughly half of the office space in downtown Oakland or about 80 percent of the office market in Walnut Creek, CoStar said.
The company has been sprawling out from its Cupertino headquarters rapidly. Last year, Apple signed a long-term lease on a futuristic office at an 18-acre Sunnyvale site and spent more than $150 million on property in San Jose. Apple declined to say how it plans to use the space, but analysts expect the growth is tied to the company ramping up efforts to sell products beyond the iPhone, for cars or related to virtual or augmented reality.
“It speaks to their view over the coming decades that they expect to be a lot larger of a company outside of their core technology today,” said Daniel Ives, a senior analyst at FBR Capital Markets.
Main product is iPhone
Apple started out as a computer company, but today its main product is the iPhone. The smartphone brought in $155 billion in net sales, making up 66 percent of Apple’s overall revenue in its last fiscal year. Macs represented just 11 percent, its second-largest product category.To avoid becoming just an iPhone company, Apple has branched into new categories, including the Apple Watch, opening its ecosystem to apps related to Internet-connected homes and health research and launching a streaming music platform.
As the company invests in new areas, it needs more space, analysts said. In Cupertino, Apple dominates the city’s office space, owning or leasing 67 percent of the market CoStar said. Finding other offices and land in the Bay Area can be tough, considering other tech giants have already claimed their spots. Google, headquartered in Mountain View, represents 38 percent of the office space there, according to CoStar data. Facebook, based in Menlo Park, occupies 22 percent of the city’s office space, CoStar said.
‘Very historic period’
“Those space commitments that mid-sized American cities will fight for 20 years to get, we see them every week,” said Mark Ritchie, president of commercial real estate firm Ritchie Commercial. “This is a very historic period in the Bay Area.”Areas that still have office space up for grabs include cities like Sunnyvale and San Jose, analysts said. And Apple would be an incredibly desirable tenant in either, mainly because it brings high-paying jobs, not to mention prestige and fame.
Nothing about the properties Apple is snapping up necessarily dictates how the firm plans to use them, analysts said. But high-stakes competition in tech and the bureaucratic process of getting the proper entitlements to build property in Northern California may have something to do with Apple’s land grab. It can take four or five years to acquire property, get it approved and built, said Phil Mahoney, an executive vice president with commercial real estate broker Newmark, Cornish & Carey.
“In Northern California, it’s a very long process to get a building approved and built,” Mahoney said. “Knowing what headcount is coming and knowing you may have a specialized need, you need to plan well in advance.”
Still, one thing is clear: Apple likes well-designed spaces with plenty of nature nearby. When it signed a 13-year lease to occupy Central & Wolfe — the new futuristic campus in Sunnyvale — according to the property’s owner, Jay Paul Co., conceptual drawings showed large circular buildings with lots of windows. The campus could have 90,000 square feet of rooftop garden space and roughly 2 miles of ground-level walking and bike paths.
Jay Paul Co. said it purchased the property for $177.5 million last year and campus construction will begin in the first quarter. The firm was attracted to the building’s design and that there was a “lease with one of the strongest companies in the country,” said Matthew Lituchy, Jay Paul Co.’s chief investment officer.
“We’re very bullish on Sunnyvale as a location for Silicon Valley,” Lituchy said.
Apple has also bought 43 acres for about $138 million and paid roughly $18 million for a former 70,000-square-foot facility, where Maxim Integrated manufactured integrated circuits, in North San Jose. Maxim had purchased the site in 1997 from Samsung. Apple is also working with the city on an agreement that would allow it to develop up to 4.15 million square feet of space in the next 15 years.
More than ‘beachhead’
“We’re happy to see Apple establish more than just a beachhead in San Jose,” said Mayor Sam Liccardo, pointing out that 4.15 million square feet is larger than Apple’s spaceship campus in Cupertino. Liccardo said he expects Apple to have several thousand employees in San Jose in the future.Unlike Cupertino, San Jose still has large properties available; the latest tech boom was slower to hit San Jose because many of the startups were initially clustered in San Francisco, and young workers in the city found the commute to San Jose to be too long, Ritchie said. Some of the buildings in North San Jose were also older research and development spaces dating to the 1970s, compared with multistory contemporary spaces in newer buildings up the Peninsula, he added.
Apple said it has more than 25,000 direct employees in the Santa Clara Valley, and it is proud to call Cupertino its home. “We’ve invested heavily, given back, and created a huge number of jobs in the area,” the company said in a statement. “We’re deeply committed to our roots in the Valley and look forward to continuing to grow here.”
Apple says it pays tens of million of dollars annually in taxes to cities in the region, and in the past has said it has invested more than $70 million in better infrastructure for Cupertino, including street improvements and underground utilities.
Real estate prices in the Bay Area can be steep compared with other areas of the country, but nothing can compare with the region’s talented employment base, analysts said. If Apple is looking for people who specialize in autos, Tesla is nearby. If the tech giant is on the search for engineers, there are plenty in the valley.
“In the Bay Area, Ph.D. is the new high school diploma,” Ritchie said. “We’re pulling from the top talent in the world.”
But there are risks to cities becoming one-company towns, when the large firm ends up having financial troubles or leaves. In the early ’90s, when Apple was trimming expenses, it moved from leased to owned facilities and closed a Fremont plant that once produced Macintosh computers.
Texas comes calling
There’s also a possibility that one day Apple may choose to open more offices elsewhere. Texas has given Apple financial incentives for its commitment to invest $304 million in a new campus in Austin, where it has more than 5,000 employees. Apple has also pledged to spend $1.7 billion euros to build two data facilities in Ireland and Denmark to power services like Maps and Siri to European customers. The centers would run on renewable energy.San Jose Mayor Liccardo says he believes his city is well positioned if anything were to happen to Apple.
“We have seen the rise and fall of tech routinely through cycles, and we know there are other innovative, fast-growing companies that are willing to fill this space as long as we continue to provide an environment that is conducive to their growth,” Liccardo said.
©2016 the San Francisco Chronicle Distributed by Tribune Content Agency, LLC.
