MARKET DRIVERS
Since the last quarter, availability rates remained at 6.1% for industrial space, while warehouse space dropped 80 basis points (bps) to 7.3%. Direct vacancy rates for both properties declined since last quarter. Industrial reached 4.2%, a 40 bps change, and warehouse had a 20 bps increase to 4.2%. For industrial, this is the first time these rates have dropped in over a year for each product type.
Direct asking rates for industrial properties are down 8.6% since 3Q24, reaching $1.80. Despite the drop, this rate is still higher than the 5-year average of $1.76. Warehouse properties are down 0.6% in the same
time frame, reaching $1.59, just lower than the record high of $1.61 recorded in the first quarter of this year.
For Industrial, leasing activity is 48.2% higher than last year’s cumulative activity to this point. Warehouse activity is also 9.6% higher than it was in 2024 and is the most activity seen since 2022. For both industrial and warehouse markets, sales nearly double in SF for both, with industrial being 88.9% higher and warehouse being 96.8% higher. This increase in sales and leasing activity is a great sign of demand for this market.
Industrial’s net absorption this quarter posted its highest total in over a decade, bringing the total direct net absorption well over 1M SF. Warehouse on the other finished negative, due to 3 straight quarters
of negative absorption before a slight rebound this quarter.
Economic Overview
Due to the government shutdown, the most recent unemployment data we have is from September of this year, when California inched up to a 5.6% rate, while Santa Clara County had a slight decline, reaching 4.5%.
In September, the manufacturing jobs and the trade, transportation, and utilities job sectors in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) are at the same rate as they were at that time in 2024 (116.0K jobs). The manufacturing sector reported 121.0K jobs, a 3.0% decrease in the same time frame.
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.
After an extended post-pandemic period marked by elevated availability, conditions are tightening, particularly for functional and well-located industrial assets. Direct vacancy for industrial properties declined to 4.2%this quarter, the first notable reduction in over a year, while leasing activity is up more than 48% compared with the same point last year. Net absorption surpassed one million square feet, representing the strongest quarterly performance in over a decade and signaling a shift from tenant consolidation to expansion.
Demand is increasingly concentrated among advanced manufacturing, aerospace, and technology-adjacent users rather than traditional logistics operators. Growth tied to artificial intelligence hardware, data-center infrastructure, and specialized manufacturing has elevated the importance of power availability, building functionality, and zoning flexibility. Submarkets such as Fremont and North San Jose continue to benefit from this shift, as newer or upgraded facilities are absorbed more quickly than older, power-constrained product. While asking rents have softened modestly from peak levels, they remain above long-term averages, suggesting the market is stabilizing rather than weakening.
Investment activity reinforces this outlook. Industrial sales volume nearly doubled year-over-year, driven by institutional and private capital targeting assets with repositioning potential. Recent transactions reflect a willingness to invest in building upgrades, particularly power infrastructure, to meet evolving tenant requirements. Financing activity has also improved, with lenders showing greater appetite for well-located assets with strong leasing fundamentals.
Looking ahead, limited new construction and ongoing power constraints are expected to restrict supply growth, supporting occupancy and pricing in the near term. While macroeconomic uncertainty remains a consideration, Silicon Valley’s industrial market is positioned to benefit from durable, technology-driven demand and sustained investor interest into 2026.
4Q 2025 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.
- Direct Vacancy Rate Declines: Industrial vacancy fell to 4.2%, down 50 bps year-over-year.
- Availability Rate Holds Steady: Total availability remained at 6.1%, up 90 bps from 2024.
- Asking Lease Rates Ease: Average asking rents decreased to $1.80/SF/month, an 8.6% YOY drop.
- Leasing Activity Surges: Industrial leasing reached 1.8M SF in 2025, up 48.2% year-over-year.
- Sales Volume Nearly Doubles: Industrial sales totaled 1.29M SF in 2025, an 88.9% YOY increase.
- Record Net Absorption: Industrial net absorption exceeded 1.58M SF for the year, strongest in over a decade.
Click here to subscribe to Kidder Mathews market research.