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Apple gobbles up Cupertino office space

Growth spurt may drive rental rates higher

Silicon Valley / San Jose Business Journal - by Sharon Simonson

Apple Computer Inc. has been quietly but consistently leasing tens of thousands of additional square footage in its hometown of Cupertino, beginning at the end of 2004 and continuing into this year, according to public records and commercial real estate sources.

Since December 2004, the city of Cupertino has received seven applications from Apple for new business licenses at seven different Cupertino addresses involving just more than 250,000 square-feet, according to Cupertino finance department records.

The company filed an application for an eighth address in mid-2002, the records show, involving another nearly 100,000 square feet.

In total, Apple has paid city business license fees or filed an application for a business license with the city of Cupertino on locations totaling more than 2 million square feet, city records show. That total includes its six-building world headquarters campus at 1 Infinite Loop, which represents about 850,000 square feet of the total. The campus, built for Apple by Cupertino's own Sobrato Development Cos. in 1993, is a regional landmark viewed daily by thousands who drive past it on Interstate 280.

Apple also includes locations on Cupertino's Mariani Avenue, North De Anza Boulevard, Lazaneo Drive, Stevens Creek Boulevard, Bubb Road and Bandley Drive.

It is not clear whether Apple is occupying all of the square footage for which it is paying the business license fees. However, it would not be uncommon for a company to lease more space that it immediately needs to lock in today's very cheap rents in expectation of future expansion.

Calls to Apple's media relations office about the company's expanding real estate leases were not returned.

The company's strengthening business climate and expanded hiring have been well-documented. Apple reported one-year sales growth of more than 33 percent to $8.28 billion for the fiscal year that ended September 2004. Its net income for the year was $276 million.

In the same fiscal year, its employee headcount grew by 23 percent to nearly 13,500, according to the Hoovers reserach firm.

Apple's activities are likely to have an effect on the relatively small Cupertino commercial real estate market. The city has less than 10 million square feet of offices and research and development buildings, according to BT Commercial Real Estate. San Jose, by comparison has more than 60 million square feet.

At the end of the second quarter, Cupertino's 4.7 million square feet of offices were 8.2 percent vacant, down from more than 14 percent vacancy a year earlier. Its asking rents were averaging about $2.50 a square foot including the cost of such things as common area maintenance.

At the same time, its 4.9 million square feet of R&D buildings were 13 percent vacant, about equal to the rate at mid-year 2004. Asking rents were less than $1.

Jim Beeger, a senior vice president with Cornish & Carey Commercial, a regional real estate brokerage, says Apple is one of four large companies in the valley whose growth is helping the valley's economy to recover and along the way helping to reduce the region's substantial commercial real estate vacancy rates. The other companies, of course, are Yahoo! Inc., Google Inc., and eBay Inc.

Apple's expansion has been less obvious than the others, however, and there's good reason for its stealth mode, Mr. Beeger says: Landlords whose properties stood in the path of Apple's expansion might be tempted to increase rents if they knew the electronic equipment maker were on the move.

"Apple is very quietly going around and taking 20,000 feet here and 30,000 feet there and really doing it quite quietly," Mr. Beeger says. "Ironically, a lot of these buildings Apple moved out of in the 1990s."

Some of the buildings the company is leasing have been on the market for years, Cornish research shows.

SHARON SIMONSON covers real estate for the Business Journal. Reach her at (408) 299-1853.

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