Tech Expansion Overruns Cities in California's Silicon Valley By Eliot Brown

Water isn't California's only scarce resource. Room to grow is evaporating in Silicon Valley as technology giants' appetites for expansion are running up against residents weary of clogged streets and cramped classrooms brought about by the boom of recent years.

Some communities are already saying they have reached their limits of development, while others signal that day is near, raising questions about the ability of the tech sector to keep expanding in what has long been its home base.

 "The economy has outgrown the place," said Gabriel Metcalf, chief executive of the Bay Area regional-planning-focused nonprofit SPUR. "The speed of economic change is much faster than the speed of community change."

Front and center is Mountain View, Calif., a onetime bastion of flower farms and apricot orchards now home to Google Inc. The city in late February received proposals from tech companies Google and LinkedIn Corp., as well as private developers, to add 5.7 million square feet of office space--more than the size of two Empire State Buildings--for an area where the city has planned to allow just 2.2 million square feet of additional growth in the next two decades.

While some city officials say they could be flexible about the 2.2 million-square-feet cap, much more would be a nonstarter without changes to the city's infrastructure. There are commuters "backing up on to our city streets that are causing tremendous inconveniences for our residents," said Randy Tsuda, Mountain View's director of community development. "It's now compromising general livability." "Silicon Valley is really straining to deal with traffic and transportation," he said.

Just to the northwest in Palo Alto, long an epicenter of venture capital and top startups, tensions are running higher. The City Council in late March approved a plan that would cap annual office development at just 50,000 square feet in three main commercial areas of the city. The move was opposed by multiple tech companies, which said it was overly restrictive. Hewlett-Packard Co. wrote in a letter to the council that under such a policy, it "would have been impossible for a company like H-P to grow to our current size." But residents and city officials say the rapid increase in office workers has overloaded the small city, filling its streets with traffic and making parking a chore.

The growth "puts special burdens on the infrastructure for cities with populations that are not that big," said Greg Schmid, Palo Alto's vice mayor. Similar issues are being faced in cities like Cupertino, home of Apple Inc., and San Francisco, which is fast approaching its 875,000 square foot annual cap of office development. Until recently, the city had been using up unused development rights from years past, but with millions of square feet in the pipeline, a crunch is looming.

Real-estate developers and tech companies, fearful such resistance could hinder growth around their headquarters, have been offering numerous benefits with proposed developments in an attempt to offset the added strains they bring. To help clear the way for development in Mountain View, for instance, the firms have offered a variety of givebacks ranging from added parks to transportation improvements, some of which were requested by the city. The region has a long history of allowing growth, developers and tech firms say. And if the employers find enough ways to mitigate the effects of growth, they believe the communities will benefit from the economic expansion. "It's not impossible, it's not going to ruin their lives--it's going to require some change," said Timothy Tosta, a San Francisco-based land-use attorney who represents numerous large tech companies and developers. "There is all kinds of room--you just have to adapt your thinking."

 Google, for one, is seeking approval for 3.4 million square feet of space in a series of glass bubble structures, for which it would demolish about 900,000 square feet of existing space. In its pitch to the city, it offered a laundry list of community benefits, including funding for a new police station, free community shuttles and restoration of burrowing owl habitat. "We've created a plan that can enhance livability in the region for everyone," Google said in its proposal.

 At the same time, some are pushing for a counterintuitive way to offset the impact of the tech growth: more residential development. If more tech workers can live in a city and walk to work, fewer will drive there, the thinking goes. Facebook, for instance, is testing the waters to include residential apartments at its headquarters in a future expansion, seeking community feedback on ideas like a dorm-like building for its interns.

For now, as the firms plot ways to expand, office vacancy is rapidly disappearing, causing rents to soar in the most popular communities.

 Mountain View vacancy has tumbled to 1.9%, causing rents to reach $90.96 a square foot in the first quarter, a level on par with top Manhattan office towers, according to real-estate brokerage JLL. That is double what they were at the end of 2011.

Rents are even higher in Palo Alto, averaging $97.57 a square foot, according to JLL.

For now, rents--and occupancy--are at far more reasonable levels in cities to the south, such as Santa Clara and San Jose. That is largely because employers view these cities as too long a commute from San Francisco, which has emerged as the home base for young employees.

Meanwhile, the rapid rise in costs in the more popular cities makes life difficult for existing employers, particularly those lacking piles of cash. For instance, the nonprofit SETI Institute recently gave up about one-third of its space at its tiny Mountain View headquarters. "Rent is really expensive here, so we'd just as soon not pay for it," said Carol Sanders, the space research group's chief financial officer. "We're just going to get rid of it and squeeze into a smaller space."

Write to Eliot Brown> at .brown@wsj.com
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