Silicon Valley Industrial Market Report

1st Quarter 2024

Posted In — Market Research | Market Report


Quarter-over-quarter, the industrial space availability saw slight increase from 4.6% to 5.0%, while the warehouse space availability rate grew from 4.4% to 4.9%.

The vacancy rate for industrial properties saw a small climb from 2.3% in 4Q23 to 2.4% in 1Q24, while warehouse property went from 3.1% to 4.1% 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.

Industrial property asking lease rates exhibited growth quarter-over-quarter, and a year-over-year decline, reaching $2.04 per square foot in 4Q23 compared to $1.92 per square foot in 3Q23 and $1.93 per square foot in 4Q22. Warehouse property rates saw an increase both timeframes, rising to $1.69 per square foot in 4Q23 from $1.52 per square foot in 3Q23 and $1.58 per square foot in 4Q22. With availability and vacancy remaining flat, landlords feel they can ask for higher rents for those looking to move in a stagnant market.

In 1Q24, leasing activity for industrial properties saw a slight quarter-over-quarter decline, reaching 202.4K SF, which was 123.0K SF less than the 4Q23 figure. This is also lower than the 364.6k recorded in 1Q23. Likewise, leasing activity for warehouse properties fell from 789.6K SF in 4Q23 to 650.0k SF in 1Q24. This is however much stronger than the 311.5K SF recorded in 1Q23.

Industrial buildings’ total sales volume saw a steep increase, from 65.2K SF in 4Q23 to 561.7K SF. Conversely, sales volume for warehouse buildings saw a downtick from 210.1K SF in 4Q23 to 81.5K SF in 1Q24.

Both the industrial and warehouse sectors experienced a downturn in direct net absorption year-over-year. Industrial declined from -6.1K SF in 1Q23 to -57.9K SF in 1Q24, and warehouse direct net absorption went from -7.3K SF in 4Q23 to -618.7K SF in 1Q24. These numbers are expected with vacancy and availability rising and leasing numbers not being dramatically different than last year.


The unemployment rate in Santa Clara County slightly increased from 3.8% to 4.3% in 1Q24. California’s unemployment rate also rose from 5.1% to 5.3% 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. Within the Transportation and Warehouse sector, there were a total of 119.4K jobs in 1Q24, representing a -4.1% decrease from the 124.5K jobs observed in 4Q23, but a -1.6% decrease from the 121.3K jobs reports in 1Q23. Likewise, in the Manufacturing sector, there were a total of 175.7K jobs, marking a -1.7% decrease compared to 4Q23, and a -2.1% decrease since 1Q23, where it was reported to be at 179.4K jobs.


In the face of increased vacancies and the looming housing crisis in California, the state instituted the “builder’s remedy” which allows real estate developers to convert spaces into housing regardless of zoning requirements. Industrial properties are not suffering from the vacancies that Office and R&D properties have been facing, but it was within the realm of possibilities that these spaces could have been converted to housing. This might change however as there is new legislation aiming at preventing projects from moving forward on industrial sites or adjacent to parcels being used for industrial. The reason being cited is for health purposes. Conversion projects have been largely centered on Office spaces, but this bill shuts the door on any possibilities of unwanted Industrial spaces being converted and lowering the supply in the market.

Institutional investors have noticed the resilience of Industrial properties and have begun to switch investment strategies to reflect this. From 2007 to 2023, institutional investors went from having office space make up 44% of their purchases, down to 17% presently. In the same time frame, industrial doubled to 26%. The institutional capital being injected into the market has been pushing prices for spaces higher and higher. In the same time that institutional investment has doubled, median sales prices have more than doubled, and rents have nearly tripled in the Silicon Valley market. Institutional investors leaving the marketplace has allowed for more owner-user opportunities for office businesses. If this trend continues, industrial businesses may begin to get priced out of these same kinds of opportunities.

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