MARKET DRIVERS
Since the last quarter, availability rates fell 120 basis points (bps) to 5.6% for industrial space, while warehouse space increased 110 bps to 8.0%.
Direct vacancy trends diverged this quarter: industrial fell 60 bps to 4.3%, back to its 1Q25 level, while warehouse rose 60 bps to 5.6%, the highest level in over three years.
Direct asking rates for industrial properties are down 5.8% since 1Q25, reaching $1.80. Despite the drop, this rate is still slightly higher than the 5-year average of $1.76. Warehouse properties are up 0.6% in the same time frame, reaching $1.57, which is also above the 5-year average of $1.45.
Industrial leasing activity is 4.3% higher year‑to‑date, while warehouse leasing is down 57.0% from 1Q 2025, reflecting a slower start for large distribution users.
For both industrial and warehouse markets, sales activity increased in square footage terms compared with the same time last year. Industrial sales volume rose 517.8%, while warehouse sales increased 122.2%, signaling that buyers remain active for well-located functional assets even as underwriting stays selective.
Industrial direct net absorption remained slightly negative in 1Q26, though it improved from last quarter. Warehouse, on the other hand, posted negative 395.4K SF of direct net absorption after finishing positive in 4Q25, reinforcing that recovery has been uneven across the two product types.
Economic Overview
In December 2025, California’s unemployment rate was 5.5%, while Santa Clara County recorded a 4.0% unemployment rate. The county remains below the statewide average, though labor conditions are still modestly softer than they were a year ago.
In the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA), manufacturing employment measured 120.2K jobs in December 2025, down from 121.0K in September. Trade, transportation, and utilities employment was essentially flat at 116.7K jobs, indicating that industrial-linked employment remains relatively stable despite broader economic caution.
NEAR-TERM OUTLOOK
The Silicon Valley industrial market is showing clear signs of renewed momentum as it enters 2026, supported by improving leasing activity, rising investor confidence, and a more defined demand profile.
Silicon Valley’s industrial market entered 2026 with mixed signals. Conditions for traditional industrial product improved modestly as availability tightened and vacancy moved lower, but the warehouse segment softened as larger blocks took longer to absorb. That split suggests demand is still present, but it is concentrated in specific user groups and property types rather than broad based across the market.
Recent activity points to where that demand is coming from. In 1Q26, Tesla leased 267,099 SF in Fremont, Quanta took 105,760 SF in Newark, and Apple renewed 90,685 SF in Sunnyvale, highlighting continued appetite from advanced manufacturing and technology-adjacent users for functional space in core locations. On the investment side, Fortinet’s purchase of 150-152 Commercial Street in Sunnyvale and Morgan Stanley’s acquisition of 44100 Osgood Road in Fremont both suggest buyers are still willing to commit capital where location and building functionality align.
At the same time, the supply pipeline remains targeted rather than broad. Projects such as Bridge Point San Jose, Campus @ Bayside in Fremont, and 475 Sycamore Drive in Milpitas are scheduled to deliver in 2026, adding modern product that will test the depth of demand from AI hardware, manufacturing, and logistics users. With limited land and ongoing power constraints still shaping occupier decisions, newer buildings should continue to lease ahead of older, more constrained inventory.
Looking ahead, Silicon Valley’s industrial market appears positioned for a gradual, uneven recovery. Industrial assets tied to advanced manufacturing and technology infrastructure should continue to outperform, while warehouse fundamentals may remain under pressure until excess availability is worked through. As a result, well-located product in Fremont, North San Jose, Milpitas, and other power-capable submarkets is likely to remain the most resilient heading further into 2026.
1Q 2026 Silicon Valley Industrial Market: Key Data Points
Explore our full Silicon Valley industrial market review for deeper insights into leasing trends, sale activity, and submarket performance.
- Industrial Vacancy Holds Steady: Direct industrial vacancy remained unchanged year-over-year at 4.3%, signaling stable fundamentals despite broader economic uncertainty.
- Warehouse Vacancy Climbs: Warehouse vacancy increased 110 basis points year-over-year to 5.6%, reaching its highest level in more than three years as large-block absorption slowed.
- Asking Rents Trend Lower: Average industrial asking rents declined 5.8% year-over-year to $1.80 PSF, though rates remain above the five-year average; warehouse rents edged up 0.6% to $1.57 PSF.
- Leasing Activity Diverges by Product: Industrial leasing volume is up 4.3% year-to-date, while warehouse leasing fell 57.0% from 1Q 2025, reflecting slower decisions among large distribution users.
- Sales Activity Accelerates: Industrial sales volume surged 517.8% year-over-year and warehouse sales increased 122.2%, highlighting continued investor demand for well-located, functional assets.
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