Santa Clara County leasing activity down 70% since Q1 for Flex/R&D; 60% for office
July 22, 2020 – Joint Venture Silicon Valley’s Institute for Regional Studies today released its second-quarter 2020 report on Silicon Valley commercial space. While uncertainties abound, indicators show that leasing activity has been muted with concentrated efforts in renewals. More sublease space has come onto the market and current construction projects have continued with some delays while new speculative development has been put on hold. Vacancy and rental rates have been highly subject to fluctuating market conditions. These trends have the potential to linger until the health crisis subsides.
As the details of future workplaces begin to take shape, the needs of companies occupying Silicon Valley’s commercial space are starting to diverge between traditional office environments and those requiring warehouse or specialized lab spaces. Decreased ridership and weariness to use public transit have led to a rise in vacant space near transportation nodes, resulting in vacancy rates similar to areas without public transportation access.
“This is a pivotal time for both commercial building owners and tenants. They’re waiting to see how long the crisis might last, and what the new normal will look like in terms of space requirements, locations, and layouts. Construction is still booming in the Valley, but how that pipeline will look in the near future is hard to predict. Everything is truly up in the air right now,” said Rachel Massaro, the Institute’s Director of Research.
“Even though tech has been faring much better than other sectors, the pandemic has put pressure on the commercial real estate market,” noted Heather Belfor, Research Manager at JLL Silicon Valley. “Companies are re-examining theirspace needs and the longer-term impact of structural changes to demand, so it’ll be difficult to predict what’s going to happen through the remainder of the year.”
- Silicon Valley office space is 76% tenant-occupied and 24% owner-occupied.
- Q2 commercial space completions totaled 1.51 million square feet; 5.5 million square feet of additional space is slated for completion in the second half of 2020; some pandemic-related delays may occur.
- Ten notable large commercial space developments were completed: two buildings at Pathline Park in Sunnyvale preleased by Proofpoint; two new buildings at the Menlo Gateway development in Menlo Park; another building added to Google’s 1.9 million square-foot lease at Moffett Place; several Class A Flex/R&D buildings in Palo Alto, Sunnyvale, and Redwood City.
- A significant amount (18 million square feet) of commercial space is under construction.
- A significant amount of new commercial space remains in the pipeline, some delayed or on hold.
- Most large commercial space construction projects that delivered in Q2 (1.51 million square feet) were completed as expected; delays are anticipated in the projects slated for completion in the second half of the year (totaling 5.5 million square feet).
- Office vacancy rates rose in Q2, partly due to Oracle’s departure from a 260,000 square-foot space in Redwood City, as well as the placement of some smaller sublease space on the market, and inspection/move-in delays for new tenants.
- Leasing activity has been muted as a result of the pandemic across all space types. Leasing activity in Santa Clara County was down by 70% since Q1 for Flex/R&D space, and by 60% for office space.
- Pandemic-related impacts on office demand – combined with decreased ridership and weariness to use public transit – have led to a rise in vacant space near transportation nodes, resulting in vacancy rates similar to areas without public transportation access.
- Commercial asking rents remained relatively steady into Q2 as many owners took a wait-and-see approach to the future needs of businesses and office demands.
- Tech companies continued to dominate preleasing activity, with 64% of space preleased and 97% of that to tech companies.
- Uncertainties regarding the duration of the pandemic and what a ‘new normal’ will look like for the region make it difficult to anticipate what will happen with commercial real estate in the second half of the year.
For further reference
To access Silicon Valley’s online data hub, visit www.siliconvalleyindicators.org.
About the Silicon Valley Institute for Regional Studies
The Silicon Valley Institute for Regional Studies is the research arm of Joint Venture Silicon Valley, and is housed within the organization. The Institute provides research and analysis on a host of issues facing Silicon Valley’s economy and society. For more information, visit www.siliconvalleyindicators.org.
About Joint Venture Silicon Valley
Established in 1993, Joint Venture provides analysis and action on issues affecting the Silicon Valley economy and quality of life. The organization brings together established and emerging leaders—from business, government, academia, labor and the broader community—to spotlight issues, launch projects and work toward innovative solutions. For more information, visit www.jointventure.org.