Lease transactions exceed 2021 totals
December 8, 2022 – Silicon Valley’s commercial space indicators reveal in the third quarter of 2022 that companies are continuing to adjust to new expectations around a remote work culture. The latest analysis from Joint Venture Silicon Valley’s Institute for Regional Studies, in partnership with JLL Silicon Valley in their third-quarter Silicon Valley Commercial Space report, published today, shows that despite increased vacancy rates, the total number of leases still surpassed last year’s totals.
Institute analysis shows that, even with the backdrop of tech company layoffs and a looming recession, rents continued to hold steady through the third quarter. In addition, the average amount of space per lease also continued to decrease across all commercial space types. Construction projects for Industrial and Flex/R&D space remain low, totaling just one million square feet combined and representing only 9% of the total amount of space under construction in the region.
Asking rents across all space types continued to hold steady, despite gradually increasing vacancy rates. Sublease space has also been trickling into the market, potentially placing downward pressure on asking rents.
“Companies are still adjusting and shifting expectations around remote and hybrid work,” noted Rachel Massaro, Vice President, and Director of Research for the Silicon Valley Institute for Regional Studies, the research arm of Joint Venture Silicon Valley. “The average company requires less space to deliver hybrid and shared workspace experiences. The pandemic has fundamentally changed the way office workers envision their daily lives and their work-life balance. How that ultimately plays out and is reflected in regional real estate trends is just now surfacing, but it will take years to fully emerge.”
Key findings:
- Silicon Valley’s commercial space completions totaled approximately 483,000 square feet, the lowest since Q3 2014.
- The entirety of the 483,000 square feet of newly-completed commercial construction was for office space, 69.5% of which had been pre-leased.
- A total of 3.87 million square feet of Silicon Valley commercial space was completed through Q3 2022. An additional 518,000 square feet of commercial space is slated for completion within the remainder of the year.
- There were more than 11.63 million square feet of commercial space under construction in Silicon Valley at the end of Q3 2022.
- The pace of commercial leasing activity in Silicon Valley remained elevated. Continuing the trend from the previous quarter, the demand for lab space in Q3 did not match the strong demand observed in 2021. Conversely, leasing activity for office space through the third quarter has already surpassed last year’s Office leasing totals.
- The number of commercial space leases continues to rise, exceeding last year’s totals. In a continuing trend, the average amount of square feet committed per lease continued to decline. The average amount of square foot per office lease in 2022 has fallen to approximately 15,600 square feet, a stark contrast to the average of 33,000 square feet observed in 2018.
- There were 985 commercial lease transactions in Silicon Valley through the third quarter of 2022. This compares to an annual total of 882 in 2021 and 481 in 2020.
- Silicon Valley office space vacancy rates continue to rise (to 16%), growing by two-thirds of a percentage point quarter- over-quarter. While San Mateo County vacancy rates declined slightly, vacancy rates in Santa Clara County (plus Fremont and Newark) rose by one and a half percentage points.
- Silicon Valley commercial vacancy rates overall have inched upward as office and lab spaces saw slight increases, whereas Industrial and Flex/R&D vacancy rates fell slightly.
- Silicon Valley’s average office vacancy rate through the third quarter of 2022 continued
to grow (+2.1%), whereas Industrial (-1.2%), Flex/R&D (-2.5%), and Lab (-3.4%) vacancy rates remained below 2021 averages. - Office space rental rates in Silicon Valley remained lower than in New York City (by 12%) but higher than Austin (by 22%), Seattle (by 30%), Portland (by 51%), and Denver (by 52%).
- Inflation-adjusted asking rents for Office space in 2022 has remained relatively stable with slight (1-2%) increases for Office, Industrial, and Flex/R&D asking rents compared to Q2.
- Silicon Valley Office rents have fluctuated since prior to the pandemic at locations near and not near to transit (within a 10-minute walk of a Caltrain, BART, or VTA station). Asking rents have increased, now 69% higher for near transit than not near transit.
- Silicon Valley office space was 81% tenant-occupied and 19% owner-occupied in Q3 2022. This compares to 79% and 21%, respectively, in Q3 of the prior 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.
About JLL
JLL is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company, JLL helps real estate owners, occupiers and investors achieve their business ambitions. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. www.jll.com/silicon-valley.
