Silicon Valley Office Market
| Average FS Asking Rent (Price/SF) | $4.68 |
| Availability Rate (%) | 10.10% |
| Net Absorption (SF) | -825,962 |
Despite its strong real estate market relative to the rest of the country, Silicon Valley has not avoided hardship in the midst of the pandemic. The second quarter of 2020 brought an increase in both direct and sublease availability, as well as a decrease in net and gross absorption. As the vast majority of office tenants were required to close their doors, many of them were forced to list portions of their offices for sublease or to vacate their office leases permanently. As a result, the overall vacancy rate rose to 10.1%. Due to these new vacancies and a slower leasing velocity, net absorption fell to negative 825,962 square feet. Despite the increased availability and drop in net absorption, the average office asking rate increased slightly, to $4.68/SF. This is primarily due to highly-priced Class A space making up 73.0% of the total office square footage added to the market this quarter. While the drop in net absorption is large, the resulting number is not alarmingly low, and Silicon Valley has seen lower numbers as recently as 2017.
Download Silicon Valley Office Market Report 2Q20Silicon Valley R&D Market
| Average NNN Asking Rent (Price/SF) | $2.36 |
| Availability Rate (%) | 11.0% |
| Net Absorption (SF) | -941,359 |
As a result of the ongoing pandemic, Silicon Valley’s R&D market took a hit in the second quarter of 2020. Net absorption fell to negative 941,359 square feet, the lowest number the market has seen since 2016. Despite the falling net absorption, the overall vacancy rate remained relatively stable at 10.98%. The overall leasing velocity was similar to that of the first quarter’s, with 1.4 million square feet of transactions. The overall asking rate increased slightly to $2.36/SF as new availabilities hit the market. While the R&D market has not completely avoided the effects of the pandemic, its numbers may be better suited to stay on track with those of recent quarters than the office market’s. R&D space is more conducive to social distancing than the traditional office space, and many life-science spaces and research labs have remained at least partially open.
Download Silicon Valley R&D Market Report 2Q20Silicon Valley Industrial/Warehouse Market
Industrial
| Average NNN Asking Rent (Price/SF) | $1.29 |
| Availability Rate (%) | 4.6% |
| Net Absorption (SF) | -634,920 |
Warehouse
| Average NNN Asking Rent (Price/SF) | $1.04 |
| Availability Rate (%) | 9.0% |
| Net Absorption (SF) | -185,392 |
While the industrial market was not immune to the effects of the pandemic, it appears more asymptomatic than not. While every submarket did post a negative net absorption, with the total negative absorption hitting an astonishing negative 634,920 square feet, there is more to the story. Amazon continued to expand its footprint, and there was an influx of renewals this quarter, resulting in a gross absorption of 760,141 square feet that was the highest since the fourth quarter of 2018. Asking rates did fall $0.03/SF to an average of $1.29/SF.
The warehouse market did not fare quite as well, but still put up decent numbers considering the circumstances. Net absorption dropped to negative 185,392 square feet, with two large subleases at the Milpitas Business Center being the main culprits. Gross absorption was also nearly less than 1/3 of the first quarter of the year, putting up a meager 458,618 square feet total. The vacancy rate jumped a full point, up to 9.0% this quarter due to the overall low activity. Despite this, asking rates continued to rise, with an increase of $0.02/SF to an average of $1.04/SF, a new historical high.
Download Silicon Valley Industrial Market Report 2Q20