MARKET DRIVERS
Asking lease rates rose 4.3% year-over-year (YOY) to $2.69 NNN.
The total vacancy rate increased 160 basis points (bps) to 11.2% YOY, with the highest increase occurring in Milpitas, climbing 340-bps to 14.4%.
Leasing activity dipped 52.7% quarter-over-quarter (QOQ), however it increased by 7.3% YOY, reaching 650.9K SF in 1Q25.
Net absorption was measured at -656.5K SF, significantly lower than the 135.6K SF recorded last quarter, and the 605.3K SF in 1Q24.
Conversely, sales volume more than doubled YOY, and nearly 50% higher than last quarter, reaching 937.1K SF. The average price per SF for these transactions is $263.29, while the 5-year average has been $362.11.
The R&D availability rate rose 80-bps to 12.7% QOQ, and 180-bps YOY. This marks the tenth consecutive quarter of rising availability, though it remains below the post-pandemic peak of 13.3% reached in 2021.
ECONOMIC REVIEW
Between October and January 2025, California’s unemployment rate saw a 10-bps decline to 5.4%, while Santa Clara County increased 20-bps to 4.3%.
San Jose-Sunnyvale-Santa Clara’s manufacturing sector reported 123.0K jobs, marking a 2.8% decrease since 1Q24 and a 1.0% dip since last quarter.
NEAR TERM OUTLOOK
In early 2025, Silicon Valley’s R&D landscape has seen notable developments. Mercedes-Benz announced plans to consolidate its R&D operations from three buildings into a single facility, aiming for increased efficiency in its research endeavors. Additionally, the 2025 Silicon Valley Index reported a substantial $69 billion in venture capital investment, highlighting the region’s robust innovation ecosystem. However, this financial influx is juxtaposed with a slight 0.1% decline in employment, suggesting complex dynamics in the local economy. These trends underscore Silicon Valley’s ongoing role as a pivotal hub for technological advancement, even amid evolving economic conditions.
Currently, there is uncertainty about which direction the market could head in. With many proposed policies including tariffs, decreased corporate taxes, and deregulation all having possible effects but not being implemented yet, it’s difficult to project where things will go. Once there are answers to what policies will be implemented, there will be more clarity on the overall effects on the market and allow decision makers to act accordingly.
Despite tech layoffs, companies moving to other markets, and a continuing rise in availability rate, sales volume was strong this quarter. There were 17 sales transactions this quarter, totaling 937,123 SF. Of these, five made up 715,928 SF. Although the average price per SF was lower than recent quarters, it’s important to note that three of these transactions, 3550 North First St., 3725 North First St., and 3270 Jay St., were all cash deals. This allowed the transactions to be done at lower prices, and because it made up so much of the SF of this quarter, it skewed the averages and doesn’t paint the full picture of the marketplace. Silicon Valley continues to be the leader in start up companies and AI innovation, demonstrated by the $7.3B that was raised by 118 separate unicorn companies (private companies with valuations over $1B) in January. Innovation will inevitably lead to more demand for R&D space, and a sign for hope in the near-term future.
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