SAN JOSE — Tech layoffs and retrenchments have caused an increase in South Bay office vacancies, particularly in downtown San Jose and Santa Clara.
According to a new report from CBRE, the South Bay’s office vacancy rate was 18% during the second quarter of 2023, up from the first-quarter vacancy rate of 15.5%.
“The office market continued its downward trend in the second quarter of 2023,” CBRE said in its report.
The South Bay, as defined by CBRE, includes Santa Clara County and the Fremont-Newark area.
“Many large tech tenants continued to offload their underutilized space,” CBRE researchers stated.
While the overall South Bay office vacancy rate is concerning, it is significantly lower compared to the vacancy rates in Santa Clara and downtown San Jose.
Downtown San Jose experienced an office vacancy rate of 26.6% during the second quarter, up from 20% in the first quarter.
The spike in downtown San Jose’s office vacancies was primarily due to the completion and availability of the 200 Park office tower developed by Jay Paul Co.
“The vacancy rate has gotten so high in downtown San Jose because we have an amazing state-of-the-art new product coming online,” said Alex Stettinski, CEO of the San Jose Downtown Association.
This is not the first time this kind of spike in office vacancies has occurred, as happened previously when an office tower at 333 West San Carlos Street was completed and remained empty for several years.
According to brokerage reports, one-third of the office space in San Francisco is empty, with a vacancy rate of 31.6% at the end of June. Downtown Oakland’s office vacancy rate is also around 20%.
Santa Clara’s office vacancy rate was 26.1% in the second quarter, up from 25.5% in the first quarter.
The West Valley area, including West San Jose, Campbell, Saratoga, and Los Gatos, experienced a soft market during the second quarter, with an estimated 23.7% office vacancy rate.
The West Valley also includes Santana Row and its brand-new office building, One Santana West, which is expected to be a tech magnet.
Cupertino had the strongest office market, with a vacancy rate of only 2.6% during the second quarter, thanks to Apple’s presence and inclination to occupy or buy office buildings.
Despite the increase in empty office space in Silicon Valley, there are some positive signs that could help stabilize the region’s office market.
Tenant demand for office space is on the rise, with prospective tenants scouting for a combined total of 5.5 million square feet in Silicon Valley during the second quarter, up from 2.5 million square feet in the first quarter.
Additionally, companies are scaling back remote work and asking employees to spend more time in their offices.
Local experts believe that the current troubles in the Bay Area tech sector are temporary and won’t become a long-term problem.
“Tenants will take these office buildings once the economy turns around,” said Alex Stettinski.
For now, tech companies are keeping a tight leash on their office portfolios, but downtown San Jose shows promising prospects compared to San Francisco and Oakland, according to Bob Staedler.