SAN JOSE — Silicon Valley’s office vacancy rate has reached a historically high level, indicating the economic effects of consolidation in the tech sector.
The office vacancy rate in Silicon Valley, which includes Santa Clara County and Fremont, stood at 21.6% in the second quarter of 2023, according to a report from commercial real estate firm Cushman & Wakefield.
“The Silicon Valley office vacancy rate increased significantly in the second quarter of 2023, finishing at a historic high of 21.6%,” Cushman & Wakefield reported.
In the first quarter of 2023, the office vacancy rate in Silicon Valley was 18.4%, as reported by the real estate firm.
Several areas contributed to the high vacancy rates in Silicon Valley, including:
— San Jose Airport area, with a staggering 42%
— Santa Clara, at 32.5%
— Downtown San Jose, at 29.9%
— Mountain View, at 26.2%
— Campbell, a relatively small office market, at 30.7%
According to the Cushman & Wakefield researchers, these markets experienced record-high vacancy rates, contributing to the overall 21.6% rate in Silicon Valley, surpassing previous peaks.
Downtown San Jose’s vacancy rate of 29.9% exceeds the previous peak of 25.1% in the third quarter of 2010. Mountain View’s 26.2% vacancy rate is considerably higher than the previous peak of 20.5% in the third quarter of 2022. The San Jose Airport area’s vacancy rate of 42% is well above the previous high of 37.7%, which occurred in the third and fourth quarters of 2022. Despite being high, Santa Clara’s vacancy rate of 32.5% is below the all-time record of 36.7% set in the third quarter of 2022, according to Cushman & Wakefield.
Silicon Valley’s overall vacancy rate includes both directly offered office space and sublease space put on the market by downsizing tenants. The increase in the office vacancy rate was partially caused by the completion of the speculative office tower at 200 Park Avenue in downtown San Jose, totaling 965,000 square feet.
In the second quarter, Silicon Valley had a total of 19.7 million square feet of vacant office space, a 19.4% increase from the 16.5 million square feet in the first quarter. Cushman & Wakefield stated that this increase was due to the addition of several large blocks of sublease space.
Going forward, tenants seeking offices are likely to focus on newer buildings, making older offices less attractive. Lower-quality offices may become obsolete and candidates for redevelopment, according to Robert Sammons, Cushman & Wakefield’s senior director of research for Northern California and the northwestern United States.
Despite ongoing tech layoffs, Silicon Valley’s future appears brighter compared to other regions due to its focus on critical industries such as hardware, semiconductors, and technology infrastructure, Cushman & Wakefield reported.