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Silicon Valley Office Market Report

2nd Quarter 2021

Posted In — Market Research | Market Report

MARKET DRIVERS

LEASE rates held steady asking $4.76/SF full service on average. This represents a 42 basis point drop from last quarter.

OFFICE availability increased 50.45% year-over-year (YOY) to 17.30%. Sublease availability rose 60 basis points YOY, standing at 3.8% for all class types.

LARGE deals dominated this quarter. Apple had the largest lease in the first half of 2021, expanding its presence in Silicon Valley with 698,550 SF at Pathline Park in Sunnyvale. NetApp sold its 695,932 SF campus in Sunnyvale to Tishman Speyer, relocating to 700 Santana Row in San Jose by leasing 301,000 SF. Oracle sold its 381,000 SF building at 488 Almaden in San Jose to a Lane Partners and PIMCO joint venture. Tech companies solidified their Silicon Valley presence with Google renewing 447,553 SF at The Quad in Mountain View and Dell renewing 153,584 SF at 5450 Great America Pkwy in Santa Clara.

GROSS absorption more than doubled YOY from 1.10M SF in 2Q20 to 2.51M SF in 2Q21. Sunnyvale and San Jose were the most active markets for the quarter with 1.33M SF and 479,165 SF respectively. Sales volume has followed a similar trend, increasing from 807,495 SF in 2Q20 to 1.79M SF in 2Q21.

NET absorption dropped to negative 396,588 SF for 2Q21. Year to date net absorption is at negative 296,039 SF. Strong leasing activity this quarter points towards a rebound for the second half of 2021.

THE construction pipeline currently has 6.08 million SF of office space under development.

ECONOMIC OVERVIEW

CALIFORNIA reopened the economy on June 15, largely removing COVID-19 restrictions on physical distancing requirements and face coverings. In Santa Clara County, 75.3% of residents ages twelve and above have had a completed vaccination as of July 2021. The lifting of COVID-19 restrictions and high vaccination rates mean that companies can implement their plans for employees to start returning to their offices and increase demand.

UNEMPLOYMENT in California stood at 7.5% for May 2021. Santa Clara County recorded the third-lowest unemployment rate in the state with 4.7% during this period.

NEAR-TERM OUTLOOK

DIRECT asking lease rates are predicted to hold firm. High sublease availabilities and remote work measures apply downward pressures to overall asking rates. Mega leases this quarter from Apple (698,550 SF) in Pathline Park in Sunnyvale and NetApp (301,000 SF) in Santana Row in San Jose help point towards the latent need for office space in Silicon Valley.

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