Tivo Rides Rent Roller Coaster

Beginning next year, the purveyor of digital recorders for television will pay the lowest rent it has ever paid for the two two-story buildings totaling 127,124 square feet. Just two years ago, it was paying the highest rent it ever paid for the leasehold, 2160 Gold St. and 2190 Gold St., which is located in the North San Jose neighborhood of Alviso.

The new rent, $1.10 per square foot commencing Feb. 1, 2010, is slightly below current market rates and about half what Tivo was paying two years ago when its rent hit a high of $2.15 per square foot. That was shortly before a three-year lease extension agreement brought the rent back down nearly 40% to $1.30 per square foot. The company's rent is now back up to $1.42 per square foot but will fall back 22.5% under the new lease agreement before increasing $0.05 per square foot per year and topping out at $1.40 per square foot.

With vacancy at 20% and rising in San Jose and building owners trying to maintain cash flow amid a severe economic recession, Silicon Valley R&D broker Jeff Arrillaga, a senior vice president with Cornish & Carey Commercial, tells GlobeSt.com the transaction appears to be a good deal for both landlord and tenant and is pretty typical of what is happening with renewals these days. The landlord avoids any down time for the building and the tenant gets its best lease rate yet for the space plus a $900,000 [$7 per square foot] tenant improvement allowance.

"Any renewal is a good renewal," Arrillaga says. Neither Tivo nor Bixby could be reached Thursday for comment.

R&D vacancy in the San Jose market ended the first quarter of the year at 19.8%, according to C&C. The asking rate for available space Bixby Technology Center is $1.45 per square foot. The average R&D asking rent in San Jose is $1.15 per square foot, according to C&C.

The Silicon Valley as a whole saw 152 R&D transactions totaling 2.3 million square feet. That's well below healthy activity in a typical quarter and made worse by the fact that 25% of the deals were renewals wherein the tenant was, if not contracting, standing pat. As a result of that and additions to the market net absorption in the Silicon Valley was a negative 2.5 million square feet in the first quarter.

"This trend will continue in the foreseeable future," Arrillaga says. "With tenant's concerns about the business climate, the desire is for short term renewals and landlords are willing to accommodate their needs to retain occupancy in their buildings."