MARKET DRIVERS
The Silicon Valley office market vacancy rate declined 100 basis points (bps) quarter-over-quarter (QOQ) to 16.6% in 4Q25, while remaining essentially flat year-over-year (YOY). Total availability also improved, falling to 17.2% (down 80 bps QOQ and 190 bps YOY), reflecting a modest drawdown in both direct and sublease space.
Leasing activity totaled 1.1M SF in 4Q25, below both 3Q25 (1.6M SF) and 4Q24 (1.2M SF). However, direct net absorption swung strongly positive, with total net absorption posting a 1.3M SF gain in the quarter (vs. 200K SF in 3Q25), signaling that occupants are selectively taking down space, often in higher-quality assets, despite a still-measured pace of new deal volume.
Office investment sales reached 1.2M SF of transactions in 4Q25, bringing 2025’s market-wide activity above last year’s pace. Average pricing held near $466/SF, as investors continued to underwrite cautiously amid elevated vacancy and a bifurcated tenant landscape.
ECONOMIC REVIEW
In September 2025, Santa Clara County’s unemployment rate was 4.5%, down 10 bps from
August (4.6%) but up 40 bps YOY (4.1%). For context, California’s unemployment rate was 5.6% in September, and the release of October and November labor market data was delayed due to impacts from the federal government shutdown.
The San Jose-Sunnyvale-Santa Clara MSA’s employment base remained relatively steady
through September 2025. Total nonfarm employment measured 1.1M jobs in September
(seasonally adjusted), down 2.8K from May. Information sector employment was essentially flat at 93.0K jobs, while Professional & Business Services employment totaled 276.5K, underscoring the region’s continued reliance on tech-adjacent and knowledge-economy hiring.
NEAR TERM OUTLOOK
Recent activity in Silicon Valley points to a market that is slowly finding its footing, driven less by broad-based office recovery and more by strategic, user-specific decisions. Select technology firms with long-term commitments to the region are choosing to solidify their presence through ownership rather than leasing, even as new office development remains difficult to justify. In Mountain View, a long-occupied office asset recently changed hands as its primary tenant elected to purchase the building outright, signaling confidence in the location despite ongoing uncertainty across the office sector. At the same time, proposed large-scale office developments continue to face headwinds. In Santa Clara, a fully entitled office site previously slated for nearly 700,000 square feet of space was sold and is now being repositioned for residential use, reflecting persistent challenges tied to construction costs, infrastructure constraints, and tenant demand.
While traditional office development remains limited, demand tied to artificial intelligence continues to concentrate in select Peninsula submarkets. An AI-focused technology firm has expanded its Palo Alto presence through multiple leases and significant interior renovations, clustering operations near existing research, engineering, and talent hubs. This expansion, supported by aggressive hiring and substantial capital backing, stands in contrast to broader office market caution.
Collectively, these transactions illustrate a market increasingly shaped by consolidation, adaptive reuse, and targeted expansion by next-generation technology users, rather than a return to pre-pandemic leasing patterns.
Silicon Valley’s office market continues to show early signs of stabilization, with demand increasingly concentrated in modern, amenity-rich buildings and AI/enterprise software users. Large tech-driven commitments, such as Databricks’ 305,000 SF Sunnyvale expansion, highlight the ‘flight-to-quality’ dynamic even as broader leasing remains uneven. At the same time, owners are actively repositioning portfolios: Cisco’s recent sale of four buildings at its San Jose campus and the advancement of office-to-residential conversion plans in downtown San Jose illustrate how capital is being redeployed to align with post-pandemic space needs.
4Q 2025 Silicon Valley Office Market: Key Data Points
Explore our full Silicon Valley office market review for deeper insights into leasing trends, sale activity, and submarket performance.
- Vacancy Rate Holds Steady: Total vacancy declined to 16.6%, down 100 bps quarter-over-quarter and nearly flat year-over-year.
- Average Asking Rent: Asking lease rates averaged $4.10/SF FSG, a slight 0.2% decrease YOY.
- Net Absorption Rebounds: Net absorption posted a 1.3M SF gain in Q4, reversing prior negative trends.
- Leasing Volume Softens: Leasing activity totaled 1.1M SF, down 10% YOY and below Q3’s 1.6M SF.
- Sales Volume Surges: Office investment sales reached 1.2M SF, up sharply from 300K SF in Q4 2024.
- Construction Pipeline: Space under construction remained at 1.76M SF, with no new deliveries this quarter.
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