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Silicon Valley Office Market Sees Strong Leasing Activity and Declining Vacancy Amid Construction Slow-Down

1/15/25

This report provided by CBRE

MARKET HIGHLIGHTS

• Santa Clara County’s labor force stood at 1.03 million with 990,000 employed residents at the close of Q4 2024. The unemployment rate closed the quarter at 4.2%, a 29-basis-point (bps) increase year-over-year (YoY), and 1 bps lower than the previous quarter

• Overall vacancy in Silicon Valley decreased from 19.9% to 18.8% quarter-over-quarter (QoQ); however, vacancy increased 40 bps YoY from Q4 2023’s 18.4%

• Overall net absorption in the Silicon Valley office market ended Q4 2024 at 1,285,549 square feet (sq. ft.) compared to negative 169,274 sq. ft. in Q3 2024

• Active requirements for office and R&D space ended Q4 2024 with 6.1 msf. This is down from 8.0 msf at the end of 2023, and below the ten-year quarterly average of 7.4 million sq. ft

• 2.1 msf of new construction delivered in 2024. Currently, 231,579 sq. ft. is under construction, 100% of which is pre-leased


OFFICE OVERVIEW

The Silicon Valley office market is comprised of roughly 107.4 msf. Approximately 232k sf was under construction at the close of the quarter, all of which is currently pre-leased to a single user. The fourth quarter was the only quarter in 2024 to not have any construction completions. Overall availability decreased from 21.5% to 20.2% QoQ and is also down from Q4 2023's 21.9%. Vacancy decreased 110 bps QoQ to 18.8%; however, there was a 40 bps increase YoY.

The overall average asking rate for office space in Silicon Valley decreased $.01 to $5.37 in Q4 2024 on a monthly, Full-Service Gross (FSG), direct basis. This is also a decrease YoY from $5.47 FSG. Palo Alto continued to ask for the highest overall average rent at $8.88 FSG; additionally, Palo Alto’s Class A metric recorded the highest average rent at $10.25 FSG. It is worth noting that while asking rates have remained overall steady, deal rates continue to fluctuate based on overall concession packages.

Deal flexibility from landlords was a driving factor in leasing activity throughout the fourth quarter which closed with roughly 3.1 msf of leasing activity. This is a 82.2% increase QoQ and a 67.6% increase YoY. Annual leasing activity was 8.0 msf, a 26.1% increase YoY. Net absorption totaled 1,284,549 sq. ft. in Q4 2024 compared to negative 169,274 sq. ft. in Q3 2024. Annual net absorption ended at 1,063,357 sq. ft. Comparatively, 2023 concluded with net absorption at negative 3,755,176 sq. ft. Sunnyvale posted the largest occupancy loss in Q4 2024, whereas Santa Clara posted the largest occupancy gain due to Mission 101 coming off the market.

Active requirements for office and R&D space ended Q4 2024 with 6.1 msf. This is down from 8.0 msf at the end of 2023, and below the ten-year quarterly average of 7.4 million sq. ft. The decrease was attributable to companies signing large leases throughout the year.

The year 2024 ended with positive momentum despite facing multiple headwinds. Most notably vacancy recorded a 20-year high in Q3 mainly due to many recent construction deliveries. Upon completion of a pre-leased project in 2025 there will be no new projects under construction. These challenges hindered further growth throughout the year. Additionally, some companies enacted return-to-office mandates, which portends potential growth.


This report was prepared by:

Rebecca Schmid
Sr. Research Analyst

Giovanni Giannotta
Research Manager

CBRE Silicon Valley





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