Silicon Valley Office Market
Given the leasing activity in the first half of the year, we might be at an inflection point in the office market. Net absorption was positive through the second quarter as the combination of sublease space and new construction that has been delivered to the market slowed. Despite the shrinking supply of sublease space, more direct available space came back on the market in the first half of 2024 pushing the overall vacancy rate up to 19.4% in the second quarter from 18.8% at year-end 2023. Asking rents in Silicon Valley rose to $5.10/SF full service in 2023 and have remained relatively steady at $5.12/SF full service so far in 2024. While full service asking rents are flat, concessions, including TIs and free rent, still play a big part in lease negotiations. In addition, as companies continue to look for ways to bring employees back to the office, amenities including flexible workspaces, more conference rooms, and up-to-date infrastructure also play a big role
Download Silicon Valley Office Market Report 2Q24
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.
Download Silicon Valley R&D Market Report 2Q24Silicon Valley Industrial Market
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.
Download Silicon Valley Industrial Market Report 1Q24