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Silicon Valley was rated among the top of the list in both office absorption and apartment rentals, according to ONCOR’s Mid-Year North American Office Market Report.

The area ranks third nationally, behind Manhattan and Atlanta, in demand for office space with 8 million sf of net leasing. It also sits high in the Class A rental rates list at $54 per sf, just behind San Francisco and Boston. Silicon Valley’s 2.43% rental vacancy rate, places it second in that category, trailing Seattle’s 1% vacancy rate.

The average rental rate for central business district Class A space across North America’s office markets leaped 6.9% to $22.72 over the past six months, 9.3 % compared to a year ago.The average rental rate outside CBDs is now $23.96, up 3.5% this year and 5.9% over the past 12 months.

Silicon Valley residents can’t look to suburbia for relief. The average rental rate there increased by 92% or $33.40 as space scarcity grew in more urban areas. At $70 per sf., Silicon Valley has North America’s highest average rental rate. Nearby San Francisco suffered rents climbing an average of $18, a 35% increase in the city’s CBD over the past six months.

In a shift of the type of office space occupied, ONCOR said during the first half of 2000 13.6% of all office space absorbed was a Class B or lower grade. During the same period last year the figure was 24%. The shift reflects the diminishing supply of Class B space rather than tenant preference for premium buildings.

Technology and dot-com companies are especially busy signing leases throughout the country, particularly in CBDs. The businesses prefer airy, lofty environments offered in many older Class B or lower structures.

According to ONCOR, it’s a good time to own seasoned, well-located, spacious buildings that have, or can gain, high-speed computer access. At the same time, however, the company is cautioning investors about the volatility of the high-tech industry.Sudden shifts in consumer demands, fluctuations in the economy, increased competition and cash-flow squeezes could unsettle markets overnight.

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