Having three “best” years in a row is no small feat, but the annual Cornish & Carey forecast event on January 21 provided an opportunity to reflect on the broad-based factors contributing to Silicon Valley’s success, and the corresponding hopefulness that these dynamics are more sustainable than in previous booms.

Starting with the real estate data that Cornish & Carey is known for, there is every reason to celebrate.

  • Price per square foot of all classes of office space is rising, especially in central business districts and campus environments.
  • Vacancy rates for both office and research & development (R&D) space are declining.
  • Venture capital funding is up (strongest since 1999), and there is a resurgence in initial public offerings (IPO’s).
  • Multi-family housing development is strong.
  • Credit is affordable.
  • Silicon Valley has reached an all-time high in employment rates.
  • Consumer confidence is high.

What makes this sustainable? The so-called “fifth wave” in employment revolves around “IoT,” or Internet of Things. This year’s Consumer Electronics Show was dominated by all things IoT — “wearables,” home monitoring devices of all kinds, and communications devices that track everything imaginable from health care to security systems.

This isn’t to say there aren’t lurking concerns that could put a kink in this progress. Immigration policy continues to lag behind our innovation economy that depends on foreign labor. But even some of the more troubling trends, such as security breaches, spell opportunity for Silicon Valley. Technology trends and drivers similarly play to our strengths — data mining, Internet gaming, advancements in health care, streaming media, cloud expansion, and digital entertainment.

How this translates into our built environment is best summarized by Phil Mahoney, senior vice president at Cornish & Carey: “What little land we have is becoming incredibly valuable.” All of the “big names” are expanding, and tenant demand overall is the “highest we’ve seen since 2008.”

Providing a “VC” angle on this report was Mark Stevens, managing partner for S-Cubed Capital, and formerly with Sequoia Capital. He described a “Tale of Three Worlds” — or three “techtonic drivers” encompassing Big Data, Mobile and the Cloud. Silicon Valley’s prominence in all three has drawn back the “tourists” — not the ones with binoculars, but the hedge funds, mutual funds and foreign investors who are all hoping to get in on the action. He calls out hiring, housing and traffic as the Achilles heel for our region, but also provided some data points that are truly astounding:

  • There will be 10 billion connected mobile devices by 2020.
  • Spending on the cloud has increased from $17 billion to $55 billion in the last five years.
  • The time to reach 100 million users has decreased exponentially with mobile reaching the metric in three years vs. the 20 years it took the personal computer.
  • More data was created in the last year than all previous years combined.
  • Of the top 30 companies listed on the 1960 Dow Jones index, only four remain.
  • 70 percent of the Fortune 1,000 companies are new.

Stevens believes that our future depends on companies being able to optimize for change vs. efficiency. This means experimentation, the ability to fail fast or evolve, and ultimately “deleting” things that aren’t working. The “centralized command” structure is no longer relevant because “size kills; and simplicity saves.” This means companies will be smaller, with decisions being made from “first principles.” Experience will be viewed as both a blessing and a curse.

In conclusion, both Mahoney and Stevens alluded to a rate of change that is unprecedented. We will all have to keep up or die, and in doing so, embrace risk. This is good advice for cities. Mahoney notes that political environments matter, and staying relevant (and friendly) will be critical as companies seek partners that reflect their values of being nimble.