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 fourth quarter of 2023 totaled negative 71,375 SF in the industrial sector and negative 157,498 SF in the warehouse sector, for a total of 86,112 SF of positive absorption overall. Vacancy in the industrial sector rose slightly to 4.3% from 4.2% quarter-over-quarter, while the warehouse vacancy rate fell from 3.9% to 3.4%. Asking lease rates in the industrial sector increased from $1.58/SF to $1.60/SF, while warehouse asking rents rose from $1.16/SF to $1.29/SF quarter-over-quarter. Industrial and warehouse rents have consistently posted growth year-over-year for the past five years, indicating demand that has risen in step with new supply. Tenant demand remains strong in the industrial sector, with 2.3 million square feet of industrial requirements in the Valley, up from 1.6 million square feet year-over-year.