MARKET DRIVERS
The industrial availability rate increased by 2.2% quarter-over-quarter (QOQ) from 2.4% in 3Q22 to 2.5% in 4Q22, whereas the warehouse availability rate increased 13.3% QOQ from 3.3% in 3Q22 to 3.7% in 4Q22.
The vacancy rate for industrial buildings decreased 14.3% QOQ from 1.7% in 3Q22 to 1.5% in 4Q22, whereas the warehouse vacancy rate decreased 9.9% QOQ from 2.8% in 3Q22 to 2.5% in 4Q22.
The industrial asking lease rates rose 6.7% QOQ from $1.64 SF/ NNN in 3Q22 to $1.75 SF/NNN in 4Q22, whereas asking lease rates for warehouse decreased 15.5% QOQ from $1.61 SF/NNN in 3Q22 to $1.36 SF/NNN in 4Q22.
Total leasing activity for industrial buildings rose 29.2% QOQ from 165,860 SF in 3Q22 to 214,282 SF in 4Q22 but fell 57% year-over-year from 498,654 SF in 4Q21 to 214,282 SF in 4Q22. Warehouse activity fell 78.2% QOQ from 983,827 SF in 3Q22 to 214,497 SF consistent with the decline in leased SF YOY.
Total sales volume increased substantially by 4,340% QOQ from 101k SF to 4.5M SF for industrial, while the sales volume of warehouse fell by 55.7% from 209,398 SF in 3Q22 to 92,858 SF in 4Q22.
Direct net absorption decreased 10.6% from 143,403 SF in 3Q22 to 128,162 SF in 4Q22 for industrial, as well as increasing 32% from 156,365 SF in 3Q22 to 206,386 SF in 4Q22 for warehouse.
ECONOMIC REVIEW
Santa Clara County’s unemployment rate remained steady at 2.3% and still maintained a lower unemployment rate then the state of California at 4.0%.
Industrial jobs increased both QOQ and YOY in the San Jose-Sunnyvale-Santa Clara MSA. The Transportation and Warehouse sector increased 2.0% QOQ and 3.3% YOY to 123,400 jobs, while the Manufacturing sector increased 0.4% QOQ and 3.2% YOY to 176,400 jobs.
NEAR-TERM OUTLOOK
The Silicon Valley industrial market continued to demonstrate strength with 260,643 SF of warehouse deliveries in Fremont and 862,697 SF of industrial construction completions in Campbell, San Jose, and Santa Clara.
Low vacancy, high construction, and rental-rate growth in industrial markets has led to the sector becoming more competitive. Smaller users such as e-commerce startups are turning to co-warehousing, where they lease “end of life” properties and share it with other tenants.
A sizable industrial center was approved for construction in South San Jose paving the way for companies like Amazon to expand their operations. This significant industrial construction demonstrates the industrial market’s resilience even in a much-anticipated economic downturn.
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