|
|
|
|
7/06/26
|
This report provided by real estate services firm Kidder Mathews
Market Drivers
• Since the last quarter, availability rates decreased 140 basis points (bps) to 4.7% for industrial space, while warehouse space rose 70 bps to 9.1%. Industrial availability is now 90 bps below the same time last year, while warehouse availability is 50 bps higher.
• Direct vacancy rates were mixed between product types. Industrial vacancy dropped 100 bps quarter-over-quarter (QOQ) to 4.4%, which is 40 bps below the same time last year. Warehouse vacancy increased 60 bps QOQ to 7.5% and is now 180 bps higher year-over-year (YOY).
• Direct asking rates for industrial properties are down 4.2% YOY, reaching $1.84/SF NNN. Despite the decline, this rate remains higher than the 5-year average of $1.76. Warehouse properties increased 6.4% over the same time frame, reaching $1.67/sf NNN, which is above the five-year average of $1.45.
• For industrial, leasing activity is 23.5% higher than last year’s cumulative activity to this point. Warehouse activity is also 49.7% higher than it was at this point in 2025, driven by 1.3 msf of leasing activity this quarter.
• Sales activity was split between the two product types. Industrial sales volume reached 761.5k sf year-to-date, 528.7% higher than last year’s cumulative total. Warehouse sales, on the other hand, are 46.2% lower than they were at this point last year, with 333.1k sf sold through the first half of the year.
• Industrial’s net absorption was positive for the second straight quarter, totaling 355.2k sf in 2Q and bringing year-to-date absorption to 370.6k sf. Warehouse absorption remained negative, totaling negative 39.1k sf for the quarter and negative 430.3k sf year-to-date, as availability continued to expand across the product type.
Economic Review
• California’s unemployment rate held steady at 5.3% in May 2026, while Santa Clara County recorded a 3.4% unemployment rate, remaining below the state average.
• The manufacturing and trade, transportation, and utilities job sectors in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) remained relatively stable entering midyear. Manufacturing employment reported 128.3K jobs in May 2026, up 1.1% YOY, while trade, transportation, and utilities employment reached 116.5K jobs, up 0.4% YOY.
Near-Term Outlook
The Silicon Valley industrial market showed stronger momentum through the second quarter of 2026, led by improving industrial fundamentals and continued demand from advanced manufacturing and technology-adjacent users. Industrial vacancy fell to 4.4%, while availability tightened to 4.7%, suggesting that tenants are absorbing functional product faster than new space is being added. Positive absorption of 355.2k sf this quarter and 370.6k sf year-to-date further reinforces that the industrial segment is beginning to stabilize after several quarters of uneven demand.
Warehouse fundamentals remain more mixed. Leasing activity is nearly 50% above last year’s pace, but availability increased to 9.1% and vacancy rose to 7.5%, indicating that warehouse users are still active but not absorbing space quickly enough to offset move-outs and newly available blocks. This split between improving industrial conditions and softer warehouse fundamentals is important to the near-term outlook, as it suggests demand is increasingly concentrated in specialized, higher-functioning product rather than broad-based logistics space.
Recent activity supports that narrative. Super Micro Computer leased a 714k sf campus on Qume Drive in San Jose to support its AI infrastructure manufacturing operations, while NVIDIA leased 302.8k sf at 5853 Rue Ferrari in San Jose. These transactions highlight how demand tied to AI hardware, server manufacturing, and advanced technology production is supporting large industrial requirements in the region. At the same time, Hines’ purchase of the 155.5k sf Cherry Street Tech Center in Newark points to continued investor interest in manufacturing-ready assets that can serve specialized users.
Looking ahead, the market should remain bifurcated. Industrial product with power capacity, flexible layouts, and access to Silicon Valley’s advanced manufacturing ecosystem is positioned to outperform, while warehouse space may remain under pressure until availability begins to compress. With limited new construction and several large users still expanding in the region, the market’s near-term outlook remains constructive, though performance will continue to vary by product type, building functionality, and submarket.
The information in this report was prepared by Kidder Mathews Vice President of Research Gary Baragona.
Data source: CoStar, EDD, BLS, FRED, Silicon Valley Business Journal, San Francisco Business Times, Bisnow
|
|
 Return to the previous page
|
|
|
|
|
|
Printer-friendly Version
Email an Associate
