Tech Stays Away in Droves from Silicon Valley

(MoneyWatch)  Silicon Valley has become synonymous with high tech and the Internet in the U.S. So when you hear that office vacancies in the area are at their highest rates in 15 years, you know something is wrong.

Almost 20 percent of the office space has gone empty. According to Stephen Levy of the Center for Continuing Study of the California Economy, the reason was losing between 50,000 and 60,000 jobs, and supposedly the vacancy rate could even increase through 2010. Monthly rates could drop by almost 30 percent from last year's levels. However, that still leaves 2,000 square feet of office space at $3740 a month, or almost $45,000 a year.

It's a tough dynamic that might make a company want to focus on actually generating cash flow and revenue. The problem is that although the Valley has infrastructure and a lot of talent available, it is also horrifically expensive. Keeping a business going until it reaches profitability means having a big chunk of cash that management judicially hoards and spends only when it must. That kind of discipline does not come easily or naturally to most, and it's even more important when private equity fund raising tanked in 2009.

When money is scarce, finding cheaper digs becomes essential. I wonder whether the vacancy rate is a sign that new start-ups have just shut down for the time being, or if there is a developing shift in habits, with entrepreneurs seeking more affordable environments, figuring that Silicon Valley doesn't have a lock on talent. It could be one of those occasional disruptions, in which once bright and beautiful enclaves of technology, like the Rte. 128 ring around Boston, are pushed aside by up and comers. I know from past reporting experience that virtually every major metro area has some sort of effort to attract high tech companies into their area, figuring that economic benefits will follow. The question is, where's the next Big Place? (I'm now bracing myself for the potential PR onslaught as cities try to promote themselves -- likely to no avail.)

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