City of Morgan Hill Economic Blueprint.docx

Real Estate Market Conditions

According to commercial brokers, the office real estate inventory in Morgan Hill is relatively limited and weaker compared to other locations in Silicon Valley as indicated by vacancy rates, asking lease rates, and absorption. Office space is mainly available within the City’s industrial and R&D areas. Morgan Hill has a large and diverse industrial sector, which includes both traditional industrial/manufacturing facilities as well as flex/R&D type facilities associated with the high-tech sector. While vacancy in these areas has decreased to single digit numbers, the asking rents are much lower compared to the average for Silicon Valley. In addition, development opportunities in Morgan Hill are generally located in vacant, undeveloped lands that have the high

development costs associated with developing in a greenfield environment, including bringing utility connections and building offsite improvements plus any development fees such the Habitat Conversation Plan fees. The first-time cost to build the infrastructure may be a substantial barrier. Some of these costs include the City’s development impact fees to supply service such as water and sewer to these undeveloped lands. Since Morgan Hill is still developing its infrastructure, these fees can be higher than in neighboring cities for some types of development (R&D/high tech manufacturing and auto dealerships) as shown in Figure 16. Lower rents coupled with higher development costs can be a challenge to attract future development.

Figure 16. Comparison of Development Impact Fees by Development Type

Morgan Hill

San Jose Gilroy

$2,500,000

$2,000,000

$1,500,000

$1,000,000

$500,000

$0

R&D/High Tech Manufuring (per 150,000 Sq. Ft.)

Hotel (per 150 Rooms)

Auto Dealer (per 50,000 Sq. Ft.)

Sources: Cities of Morgan Hill and San Jose, 2015; Strategic Economics, 2017.

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