Office Sublease Availability Hits Record in Silicon Valley

Office sublease availability in Silicon Valley hit another record in the third quarter, rising to 7.6M SF, more than $3M higher than the amount a year ago.

While the overall office availability rate held level at 26.6%, a new Q3 2023 market report from Savills projects that availability in Silicon Valley will continue to increase during the remainder of the year.

“With an entire technology sector in a correction, office availability in Silicon Valley is at an all-time high and is expected to increase even further as return to office rates have lagged the rest of the country despite high-profile corporate announcements around return to office,” the Savills report said.

Downtown San Jose had the highest submarket availability rate of 36.9%. Mountain View and Santa Clara posted availability rates of 33.6% and 29.7%, respectively, while Sunnyvale’s rate was 20.4%.

Leasing activity dwindled in the third quarter in Silicon Valley to 652K SF from the 668K SF reported at the end of Q2 2023. This represents a steep drop from the 1.7M SF reported at the end of Q3 2022.

Compared to the five-year quarterly leasing average of 1.3M SF, office space demand is half of what it was before the tech sector correction began.

However, despite the lower leasing activity, the overall average asking rental rate continue to rise to $5.22 per square foot per month, up from $5.18 psf in reported in the second quarter.

With availability rates increasing and leasing activity down, Savills projects that tenant-favorable market conditions will continue in the Silicon Valley office market for the remainder of 2023 and into 2024 as landlords aggressively compete for occupancy.

“Due to slow return to office rates and an overdependence on the technology sector, the market is expected to remain slow through at least the beginning of 2024,” the report said.

Savills said it expects much of the leasing activity to be at the top end of the market as occupier flight to quality and high landlord concessions continue.

“Occupier flight to quality will continue but expect more flight to capital as landlords who are stronger financially benefit amidst rising interest rates,” Savills said.

The top lease transaction in the third quarter in Silicon Valley was Sony’s renewal of 79,874 SF at 1730 N. 1st Street in North San Jose.