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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
Sources: Cities of Morgan Hill and San Jose, 2015; Strategic Economics, 2017.
$0
$500,000
$1,000,000
$1,500,000
$2,000,000
$2,500,000
R&D/High Tech Manufuring
(per 150,000 Sq. Ft.)
Hotel
(per 150 Rooms)
Auto Dealer
(per 50,000 Sq. Ft.)
Morgan Hill
San Jose Gilroy