Silicon Valley Office Vacancy Stabilizes, Leasing Stalls
Vacancy plateaus near 2023 peak as leasing activity drops 24% in Q2.
Leasing activity in Silicon Valley’s office market plunged to 731K SF in the second quarter, a 24% drop from the previous quarter. The leasing volume in the first half of 2024 is the lowest it has been since H1 2021.
A glimmer of good news in JLL’s latest market report can be found in the vacancy and availability rates, which appear to have stabilized in the last three quarters, with a big caveat: the plateau is a whisker short of Q3 2022′s record-setting peaks.
Overall office vacancy in Silicon Valley notched 21.9%, while availability was close to 24%.
Right-sizing was a trend among notable move-ins during the second quarter, with PwC occupying about 150K SF at One Santana West in San Jose and KPMG occupying about 50K SF at Santa Clara Square—moves that amounted to 32% and 13% decreases in their respective Silicon Valley office footprints.
Quarterly absorption was marginally negative at minus 11,657 SF, with Roku vacating about 97K SF at Coleman Highline and Nutanix vacating about 59K SF at 1745 Technology Drive. Growing companies within the semiconductor and artificial intelligence sectors helped offset occupancy losses in other industries, the report said.
New leasing activity was muted, JLL said, with the largest new lease Indie Semiconductor’s 24K deal at 25 Metro Drive in the San Jose Airport submarket. The average size of a new lease in Q2 in Silicon Valley was a paltry 7,724 SF.
The top three transactions in the market were all renewals. Applied Materials renewed about 155K SF at 3325 Scott Boulevard in Santa Clara; an unspecified firm renewed a 148K SF lease in Los Gatos; and Skadden, Arps, Slate, Meagher & Flom renewed 58,671 SF at 525 University in Palo Alto, the report said.
Landlords are continuing to ease on rents with both direct and sublease asking rents declining 1.4% and 1.5% quarter-over-quarter, respectively.
Perhaps the best news in JLL’s report is that nearly 68% of the 2.3M SF of office space under construction in Silicon Valley is preleased.
“Three Google developments totaling 1.4M SF are poised to deliver and offset vacancy losses in the future. However, the remainder of the pipeline is slim and on-hold projects are not expected to proceed any time soon,” JLL said.
Meanwhile, return-to-office appears to be improving in Silicon Valley, with geo-tracking data for January through May showing that major tech companies are seeing nearly 63% of employees returning compared to 2019 levels.