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Silicon Valley R&D Market Report

1st Quarter 2024

Posted In — Market Research | Market Report

MARKET DRIVERS

Asking lease rates dropped both year-over-year (YOY) and quarter-over-quarter (QOQ). Asking rates climbed from $2.70 to $2.72 through 2023, and then fell to $2.65 in 1Q24. This is an indication that landlords are beginning to have their hands forced and come down on rates to get spaces filled.

The direct vacancy rate increased from 9.4% to 9.7% QOQ, with the most significant shift occurring in Palo Alto, climbing from 6.1% to 8.3%.

Gross absorption declined from 648.7k SF in 1Q23 to 496.1k SF in 1Q24, the lowest quarterly amount recorded to date.

Despite the decline is gross absorption, net absorption saw a YOY improvement from -691.1k to -317.4k SF. A reason for the improvement is sublet space, which netted
222.8k SF of absorbed space.

Sales volume saw a QOQ decrease from 544.0k SF to 281.7k SF. This is still 22.7% higher than this time last year.

The R&D availability rate saw an increase from 10.7% to 11.1%, both higher than the 10.5% recorded in 1Q23. This increase is still lower the 10 year average pf 11.3% for the market.

ECONOMIC REVIEW

The unemployment rate in Santa Clara County rose to 4.3% in 1Q24, the highest measured since August 2021. California’s unemployment rate also rose to 5.3%, the highest since December 2021.

From February 2023 to February 2024, San Jose-Sunnyvale-Santa Clara’s Manufacturing sector fell 2.1%, from 179.4k to 175.7k jobs.

NEAR TERM OUTLOOK

Despite challenges such as tech job purges, stagnant population growth, and a downturn in venture capital investment, Silicon Valley is still growing and adapting. Silicon Valley’s resilience is evident in its ability to rebound from the pandemic-induced economic setbacks, with its workforce not only recovering to pre-pandemic levels but also gaining thousands of jobs. Employment figures show a 1% increase compared to pre-pandemic levels, despite major tech companies downsizing their workforces for efficiency, and the region outperforming the state average in terms of unemployment rates. Additionally, the market cap for publicly traded companies in the area has reached an all-time high, indicating continued innovation and economic activity. Lastly, venture capital is still the highest in the nation, with green energy, clean technology and artificial intelligence driving the change. While challenges persist, Silicon Valley’s capacity for adaptation and growth remains robust, showcasing its enduring position as a global innovation hub amidst changing economic landscapes.

Applied Materials Inc. is set to undergo a permit hearing for its proposed $4 billion research-and-development center with the Sunnyvale Planning Commission on April 22nd. This hearing will determine the approval of the 600,000-square-foot research facility, dubbed the Equipment and Process Innovation and Commercialization (EPIC) Center, which is a key component of Applied’s extensive 10-year investment and innovation strategy. If approved, the project aims to generate significant economic benefits, including the creation of 1,500 construction jobs, 2,000 engineering positions, and 11,000 jobs in various industries by the year 2026. Moreover, Applied anticipates that the facility will serve as a catalyst for over $25 billion in research and development investment. The successful completion of this project will greatly improve the R&D market throughout Silicon Valley.

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