MARKET DRIVERS
Since the last quarter, the office availability rate decreased by 20-bps (basis points) to 18.7% in 1Q25. Conversely, vacancy rate grew 10-bps to 16.5% in this timeframe.
Net absorption was -143.9K SF this quarter, a stark contrast to the 1.1M SF last quarter, but mildly better than the -320.5K SF recorded 1Q24. Despite the tough start to last year, the total net absorption for 2024 reached 217.4K SF, a trend that hopefully continues this year.
Asking lease rates decreased from $4.07/SF FS (Full Service) to $4.00/SF in the past quarter. This is 3.1% lower than this time last year and the lowest recorded rate since the pandemic started in 2020.
The sales volume reached 708.5K SF this quarter, a significant step up from the 289.9k SF recorded last quarter, and 17.8% higher than 1Q24. The average sale price per SF for this transaction was $155.47, less than half of the value properties were being sold for last year. These discounted prices are an indication of a market correction and can also be attributed to deals being done in cash instead of financing.
Lease volume was 890K SF in 1Q25, 47.0% lower than 1Q24, and 25.8% lower than 4Q24.
ECONOMIC OVERVIEW
From October to January 2025, California’s unemployment rate declined by 10 basis points to 5.4%, while Santa Clara County saw a 20-basis point increase, reaching 4.3%.
The Professional Business Sector in the San Jose-Sunnyvale-Santa Clara Metropolitan Statistical Area (MSA) fell 1.8% yearly and 2.0% quarterly, dropping to 280.8K. Similarly, the information sector dropped 3.1% since last year.
NEAR-TERM OUTLOOK
Silicon Valley’s office market is experiencing a nuanced rebound in early 2025, marked by a clear flight to quality and a growing demand for flexible, well-located space. Large technology companies—including Google, Meta, Nvidia, and Amazon—are driving a return-to-office trend, with some campuses seeing weekday occupancy levels return to 70% of pre-pandemic norms. Leasing demand is expected to remain concentrated in transit-accessible, mixed-use areas like Palo Alto and Mountain View, as tenants continue to prioritize well-located, amenity-rich environments to support evolving workplace strategies.
Occupiers remain cost-conscious, with many favoring renewals to avoid expensive buildouts. However, there’s a widening gap between demand for high-end office product and commodity space, leading to increased concessions and limited construction. Strategic expansions from companies like Ambarella, Tabapay, and DPR Construction—each investing in new or repositioned offices—suggest confidence in long-term occupancy needs. Meanwhile, firms like Realtor.com have relocated headquarters out of Silicon Valley, reflecting ongoing cost and talent considerations.
The coworking sector is also thriving in suburban nodes, driven by hybrid work models and rising demand for flexibility. Operators like Industrious, Pacific Workplaces, and WeWork are expanding rapidly, particularly in areas like Cupertino and Menlo Park where occupancy and rates remain high. Despite pockets of distress—including defaulted loans and underutilized properties—investor activity remains strong. While short-term headwinds persist, including elevated vacancy and lingering uncertainty around interest rates, Silicon Valley’s office market is showing resilience, particularly in sectors aligned with innovation, flexibility, and long-term strategic investment.
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