Improved Silicon Valley economy affecting small businesses

The economic comeback has pushed up home and rent prices which is impacting small businesses.
November 18, 2013 6:38:18 PM PST
The economic comeback has made traffic congestion worse and has pushed up home and rent prices. That's now having an impact on small businesses that can't afford the rising rents.

There's a saying a rising tide raises all boats. But Hobee's restaurant has run into a patch of rough water because of rising rents as demand grows for office and retail space.

Just three years ago, the vacancy rate was 20 percent for commercial property in Silicon Valley. Now it's down to about 12 percent. Space is quickly being snapped up by start-ups, companies flush with initial public offering cash and by ever-expanding giants, such as Google. But that can have a negative impact on others as their leases come up.

Hobee's is a case example. Its Pruneyard Shopping Center location has been hit with a 100 percent rent increase.

"They have every right to sort of get what the market will bear for it. It just happens to not to be the right fit for us. But that is happening around the Valley," said Hobee's Vice President and Area Manager Camille Chijate.

That means Hobee's at the Pruneyard will close right after the holidays. Its other six locations will remain open. A long-time customer sees the irony of an improving economy.

"It's good to have it come back, but to see people lose their location because it's too expensive now is kind of sad," said Hobee's customer Bea Shelby.

Office space is in such high demand; rental rates are back to pre-recession levels.

"This is really the strongest and widest array of demand that I've seen, even stronger than 1999-2000," said Cornish & Carey Commercial executive Phil Mahoney.

However, competition for workers puts pressure on companies to provide food service and other amenities. That puts a squeeze on area restaurants and retailers.

"They have incredible on-site amenities. They have their own chefs. They have their own dry cleaning. They have their own doctors in some cases even come in," said Mahoney.

Some landlords are reticent to raise rents too high, especially as new construction adds more inventories.

"Doubling the rent is really hard to believe. We have rental properties, too, but we're not doubling the rents. We're giving them about an 8 percent increase just to cover the increase in the cost of servicing the properties," said landlord Mark Shelby.


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