MARKET DRIVERS
Availability for both industrial, 4.5% to 4.7%, and warehouse, 4.6% to 5.4%, spaces edged slightly higher compared to the previous quarter. Despite this increase, vacancy rates remain healthy relative to other property types.
The vacancy rate for Industrial properties saw a small climb from 2.8% in 1Q24 to 2.9% in 2Q24, while warehouse properties went from 3.6% to 3.9% over that time frame. Availability and vacancy increased for both property types over this quarter, but are both at healthy levels, especially compared to other product types.
Lease rates continued to climb for both industrial and warehouse properties, reaching $2.03/SF and $1.52/SF respectively despite increase in availability. Warehouse rates did see a small dip from the previous quarter’s $1.56, but overall, demand is strong enough to support these higher rents.
In 2Q24, leasing activity for industrial and warehouse properties saw a decline quarter-over-quarter and year-over-year. Leasing activity is down year-to-date as well, with warehouse activity being down 4.8% this year, and industrial being down 54.0%.
Sales volume for both industrial and warehouse proper ties experienced a significant drop compared to the previous quarter. Industrial sales fell from 411.2K SF to 43.8K SF, while warehouse sales went down from 128.8K SF to 33.7K SF. This decline is also reflected in year-to-date sales activity.
Both industrial and warehouse sectors saw a decrease in net absorption year-over-year and quarter-over-quarter. Industrial net absorption declined from -29.3K SF in Q2 2023 to -42.1K SF in Q2 2024. Warehouse net absorption went from a positive 7.6K SF in Q1 2024 to a negative of -209.1K SF in Q2 2024. Interestingly, the year-todate net absorption figures suggest a less dramatic slowdown than the sharp decline in leasing activity and slight vacancy/availability increases might imply.
ECONOMIC REVIEW
Santa Clara County and California saw slight improvements in their unemployment rates. Santa Clara County’s rate fell from 4.3% to 3.8% in Q2 2024, and California’s rate dropped from 5.3% to 5.2% since the beginning of last quarter.
The San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) industrial jobs saw a decline quarter-over-quarter and year-over-year. The Manufacturing sector reported 173.7K jobs, marking a 1.1% decrease compared to 175.6K 1Q24, and a 3.2% decrease since 2Q23, where it was reported to be at 179.5K jobs. Within the Transportation and Warehouse sector, there were a total of 119.8K jobs in 2Q24, representing a 0.4% increase from the 119.3K jobs observed in 1Q24, but a 0.5% decrease from the 120.4K jobs reports in 2Q23.
NEAR-TERM OUTLOOK
Santa Clara County and California saw slight improvements in their unemployment rates. Santa Clara County’s rate fell from 4.3% to 3.8% in Q2 2024, and California’s rate dropped from 5.3% to 5.2% since the beginning of last quarter.
The San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) industrial jobs saw a decline quarter-over-quarter and year-over-year. The Manufacturing sector reported 173.7K jobs, marking a 1.1% decrease compared to 175.6K 1Q24, and a 3.2% decrease since 2Q23, where it was reported to be at 179.5K jobs. Within the Transportation and Warehouse sector, there were a total of 119.8K jobs in 2Q24, representing a 0.4% increase from the 119.3K jobs observed in 1Q24, but a 0.5% decrease from the 120.4K jobs reports in 2Q23.
Silicon Valley’s industrial landscape is experiencing significant transformation and development. In San Jose’s Spartan Keyes neighborhood, Valley Oak Partners is leveraging California’s builder’s remedy to convert a 3.87-acre industrial site into a 68-unit townhome complex, aimed at increasing the availability of affordable housing in the region. Similarly, Santa Clara is witnessing a shift towards a high-density, mixed-use environment with Walnut Hill Capital Group’s proposal for an eight-story, 284-unit multifamily development featuring a public park. Concurrently, construction has commenced on the Edenvale Industrial Park in San Jose. This expansive Class A industrial facility, totaling 635,833 SF, is designed to accommodate the burgeoning demand from sectors like data servers, artificial intelligence, and cloud computing. These projects exemplify Silicon Valley’s proactive approach to addressing both its housing needs and the ever-increasing demand for modern industrial space.
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