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Silicon Valley Office Market Report

2nd Quarter 2022

Posted In — Market Research | Market Report

MARKET DRIVERS

ASKING lease rates rose 6.5% year-over-year (YOY) to $5.07/SF full service.

TOTAL NET ABSORPTION was 842,461 SF, buoyed by the completion of Google’s 1.1 million SF Bay View campus in Mountain View.

SALE VOLUME nearly halved YOY, falling 49.5% from 1.67 million SF in 2Q 2021 to 842,804 SF in 2Q 2022.

VACANCY RATES crept upward 2.5% YOY from 12.6% in 1Q 2022 to 12.9% in 2Q 2022.

GROSS ABSORPTION gained 18.7% YOY from 1.59 million SF in 2Q 2021 to 1.88 million SF in 2Q 2022. Santa Clara and Sunnyvale were the most active markets with 597,014 SF and 542,149 SF respectively.

ECONOMIC OVERVIEW

UNEMPLOYMENT in California was 4.3% for May 2022. Santa Clara County reported an unemployment rate of 1.8% during this period.

THE CIVILIAN LABOR FORCE for the San Jose-Sunnyvale-Santa Clara MSA grew 3.7% YOY to 1.07 million workers. The professional and business services sector grew 4.7% YOY to 252,200 jobs.

NEAR-TERM OUTLOOK

THE YEAR STARTED out optimistically as indoor mask mandates were lifted, and people learned to adapt to COVID. While large companies continue to have large demand for office space even with hybrid work schedules, smaller companies gravitated towards smaller footprints.

LANDLORDS are still holding the line on asking lease rates, with concessions coming through other means such as more tenant improvements or free rent.

INFLATION AND RISING interest rates have reintroduced market uncertainty. Major tech firms have instituted hiring freezes or layoffs. Investment activity has stalled as borrowing costs increase due to rising interest rates.

 
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