Subleasing Pushes Silicon Valley Availability to Record

The ongoing trend of tech giants subleasing big chunks of office space pushed sublease availability in Silicon Valley’s office market to record levels in Q1 2023.

Sublease vacancies approached 3M SF in the first quarter in Silicon Valley, a quarter-to-quarter jump of 130 bps, while overall the vacancy rate crept up to 17.3%, according to JLL’s Q1 2023 office market report.

Net effective rents in the Silicon Valley office market, including concessions and Tis, were 13% below base rents YTD at the end of the first quarter, compared to 2019 deals, which ran 0.5% below base rents.

On the positive side, Silicon Valley for the first time since 2019 maintained positive net absorption for consecutive quarters. The delivery of Adobe’s North Tower in downtown San Jose and Bytedance’s move into Coleman Highline in San Jose Airport accounted for nearly 1.4M SF of absorption.

The Adobe tower encompasses 700K SF and the Bytedance move involves 658K SF.

Leasing activity rebounded strongly with 937K SF of office space inked, 58% higher than the fourth quarter level. However, average deal size waned with nearly 87% of deals transacted under 20K SF, JLL said.

Despite strong leasing activity, total availability continued to increase and grew by 160 bps over Q4 2022. Meta and Linked In were the largest contributors, adding nearly 1M SF of sublease space in Sunnyvale combined, JLL said.

Meanwhile, sublease offerings continue to build along the I-680 corridor. This week, the San Francisco-based State Compensation Insurance Fund listed two office buildings encompassing 230K SF for sublease, according to a report in the San Francisco Business Times. The campus is located at 5880 and 5890 Owens Drive in Pleasanton.

According to the report, the public insurance provider, which is commonly known as State Fund, does not know exactly how much office space it will continue to need.

A spokesperson said this is because the public carrier does not know how many State Fund employees want to continue working in the office, which could mean that the person in charge of real estate also may be working remotely.

The four-story Class B buildings were built in 2000, according to Loopnet. State Fund bought the 11-acre Pleasanton campus in 2006 for an undisclosed price.

“The tech sector is expected to continue reducing its footprint [in Silicon Valley] as technology companies focus on net operating income over top-line revenue growth,” JLL’s report said.

“These macro factors, in tandem with historically low active requirements and declining asking rates, will keep the market tenant-favorable for the remainder of the year,” JLL said.