Silicon Valley Office Market
Net absorption in the first quarter of 2024 totaled 623,487 square feet, recording positive absorption for the second quarter in a row. Most of the positive absorption this quarter was caused by 1.3 million square feet of build-to-suit construction by Google; the overall vacancy rate rose from 18.8% to 19.3% despite the positive net absorption, indicating that vacancies are still outpacing demand. The construction pipeline fell to ±1.3 million square feet this quarter following the completions mentioned above, its lowest point since 2011. Though several projects are planned, many have been put on pause until demand returns. Asking lease rates throughout the region fell from $5.10/SF to $5.05/SF full service, a 1.0% decrease quarter-over-quarter, but represents the first quarter since 2022 that asking lease rates have fallen despite rising availability during the same period.
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Silicon Valley R&D Market
Net absorption in the first quarter of 2024 totaled negative ±517,135 square feet, the eighth consecutive quarter of occupancy losses, translating to an increase in the overall vacancy rate from 11.3% to 11.7% quarter-over-quarter. Gross absorption saw a bump this quarter, posting ±2.8 million square feet of activity, however, much of this figure came from off-market sale activity that did not influence the vacancy rate. R&D rents fell slightly to start the year, decreasing from $2.96 to $2.93/SF quarter-over-quarter. Although life sciences rent continue to prop up the market, diminished demand from the life science sector have caused rent growth to stagnate. One project broke ground this quarter, the ±55,000 square foot “The Barn” in Morgan Hill to be used as Techcon’s headquarters. As R&D space becomes increasingly specialized, more users are opting for build-to-suit construction over renting.
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Net absorption in the first quarter of 2024 totaled negative 107,049 square feet, with negative 41,897 square feet from industrial sector and negative 65,152 square feet from the warehouse sector, translating to a 20-basis point increase in the vacancy rate quarter-over-quarter, rising to 4.1%. This is about the same level as it was last year at 4.2%, suggesting the industrial market is quite stable at this time. Asking lease rates in the industrial sector fell slightly from $1.60/SF to $1.56/SF, while warehouse asking rents rose from $1.29/SF to $1.33/SF quarter-over-quarter, although the combined industrial and warehouse asking rent rose from $1.46 to $1.49. Given the market’s strong fundamentals, rent growth is likely to continue. Tenant demand remains strong in the industrial sector, with 2.7 million square feet of requirements in the Valley, up from 2.3 million square feet quarter-over-quarter.
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