Silicon Valley Office Sublease Supply Up 64%

The sublease supply in the Silicon Valley has continued to well through the start of the year. According to the first quarter office report from Colliers , the market’s sublease supply has increased 64% through April 2021, up 1.5 million square feet. Since March 2020, there have been 180 new subleases added to the market, creating a total of 248 subleases available.

In total, there is 3.9 million square feet of sublease supply on the market, according to the report. The supply has pushed sublease rates to $4.36, down year-over-year. The good news: the market share of sublease supply is declining from its peak in quarter 3 of 2020. In the first quarter, sublease space was 25% of the total office supply, down from approximately 26% in the third quarter 2020.

Small blocks of space account for the majority of the sublease supply. Of the 248 total available sublease units, 107 are less than 5,000 square feet, and 44 are 5,000 to 10,000 square feet. In the mid range, 77 spaces range from 10,000 to 50,000 square feet and only 20 spaces are greater than 50,000 square feet.

Since the start of the pandemic, the total available office space in Silicon Valley has also increased, up 43.8% to 15.5 million square feet. Although sublease asking rents are down for the year, direct lease asking rents have grown. Rents are $5.15 per square foot, up compared to the first quarter but down quarter-over-quarter.

While the sublease supply in Silicon Valley has grown significantly during the pandemic, the neighboring San Francisco market has one of the largest sublease availability rates in the country, according to a recent report from Cushman & Wakefield. The San Francisco market is second only to Manhattan for sublease supply, increasing a staggering 587% in 2020. As a result, the sublease market now represents 51.8% of the overall office vacancy rate in the San Francisco and exceeds sublease availability during the Dot-Com Recession.

In San Francisco, experts expect the sublease supply to continue to grow through 2021; however, trophy properties are better prepared to survive the storm than lower quality buildings.