MARKET DRIVERS
Since the last quarter, availability rates rose 10 basis points (bps) to 5.1% for industrial spaces, while warehouse dropped 40-bps to 7.2%.
Direct vacancy rate for both properties grew since last quarter. Industrial reached 4.0%, a 50-bps change, and warehouse had a 60-bps increase to 4.4%. For industrial, this is the highest recorded since 2012. Warehouse is still below the 6.1% high recorded in 2Q21.
Direct asking rates are down 3.6% since 1Q24, reaching $1.90. Despite the drop, this rate is still significantly higher than the 5-year average of $1.67. Warehouse is up 4.5% in the same time frame, reaching $1.61, a new record high for the product type.
For Industrial, leasing activity is 28.8% lower than 1Q24, but only 4.3% lower than last quarter. Conversely, Warehouse activity is just 7.5% lower than 1Q24, but more than twice as high than it was in 4Q24. In a similar light, warehouse leases did not reach the previous quarter or year’s volume and is down 31.9% cumulatively. Although both are slightly below average, they aren’t strong indicators of decreasing demand for the respective products.
Sales volume for both industrial and warehouse properties were poor this quarter, industrial is down 86.2% compared to last year, and 13.4% to last quarter, and warehouse is down in the same time frames 28.3% and 29.2% respectively. There has yet to be a bump in investments that were hoped for from the lower interest rates.
One bright spot for Industrial was direct net absorption, which was 357.8K SF, significantly higher than the 45,5K SF last quarter, and the -29.3K SF in 1Q24. Warehouse dropped to -361.4K SF which is lower than last quarter’s negative 190.0K SF, and 1Q24’s 7.6K SF.
Economic Overview
From October to January 2025, California’s unemployment rate decreased by 10 basis points to 5.4%, while Santa Clara County’s rate rose by 20 basis points, reaching 4.3%.
The San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) has been on a downward trend for manufacturing jobs and for the trade, transportation, and utilities. The manufacturing sector reported 122.8K jobs, marking a 1.2% dip since last quarter and a 2.4% decrease since 1Q24. The trade, transportation, and utilities sector recorded 124.8K jobs, 1.4% lower than last quarter, but 0.8% higher than last year.
NEAR-TERM OUTLOOK
Silicon Valley’s industrial and warehouse sector continues to evolve as stakeholders navigate a dynamic mix of investment, development, and economic pressure. Significant transactions, such as Ingrasys Technology USA’s $128M purchase of six Sunnyvale buildings, underscore investor interest in locations proximate to semiconductor and AI infrastructure.
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