Forecast shows Silicon Valley on road to recovery

January 27, 2011 7:27:46 PM PST
Google created excitement earlier this week when it announced plans to add more than 6,200 employees this year, its biggest hiring spree ever. Now there are additional signs that the Silicon Valley economy is on the road to recovery.

The Silicon Valley can expect to see housing construction this year, companies are snapping up long-vacant office space, commercial and residential rent is expected to rise and developers see a need to start building new office space.

These hopeful signs emerged Thursday from a 2011 economic forecast gathering, sponsored by the Silicon Valley Business Journal.

Tom Werner, CEO of Sun Power in San Jose, says this is not a broad economic rebound, but specific sectors, such as biotech, clean tech and solar, will lead the way. He says bank lending continues to be a problem for entrepreneurs and start-up's to get the capital they need to grow, expand, and to hire. On the other hand, there are signs that venture capitalists are starting to boost their investments in the Valley.

John Sobrato, a major office developer in the South Bay, says he is about to break ground on a new apartment complex in San Jose. As companies begin to hire again, this will create demand for housing.

"Rents have been down for the last three years, but now they're starting to go up eight or nine percent is what most people are predicting, so it's getting to the point where it almost justifies... I'd say it even justifies new construction," Sobrato said.

San Jose Mayor Chuck Reed said that a flurry of construction permits came in late in 2010, and the year ended with permits issued for 1,100 new housing units. During the recession, construction had slowed to a trickle.

Sobrato also said companies have begun leasing office space in what the real estate industry calls "class A" buildings, used to house sales, marketing, and other white collar functions. Sobrato sees more demand as the economy improves, so he is eyeing the demolition of older one and two-story structures in the Valley that were originally designed for manufacturing. With virtually little manufacturing left here, they will be replaced with four to five story office buildings or residential developments.

Reed acknowledged that the public sector is where job losses will grow in the year ahead as local, county and state government struggle to close huge budget gaps. Those job losses will hurt efforts to lower the unemployment rate, currently 11 percent in Silicon Valley, unless the private sector grows and creates jobs.

"Despite losses in government, there were sectors that were growing, and that's a good thing. Clean tech is growing rapidly and that's a good thing. So we'll continue to see net job growth over the next year, but we will see government shrink," Reed said.

We'll have more on this story later today online and on ABC7 News at 6.