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 January and April 2025, California’s unemployment rate saw a 10 bps decline to 5.3%, while Santa Clara County decreased 40 bps to 3.9%.
San Jose-Sunnyvale-Santa Clara’s manufacturing sector reported 121.1K jobs, marking a 3.1% decrease since 2Q24 and a 1.5% dip since last quarter
NEAR TERM OUTLOOK
Transaction volume in Silicon Valley’s R&D sector has gained momentum in 2025, surpassing the pace of last year and reflecting renewed investor and owner-user engagement. Nvidia has been the most active buyer, acquiring more than $375M in Santa Clara real estate in recent months. These purchases, including properties on Walsh Avenue and San Tomas Expressway, reflect a strategic shift from leasing to ownership, allowing the company to control costs, secure long-term expansion space, and align real estate with rapid organizational growth. Nearby, the $19.85M sale of 4750 Patrick Henry Drive to a new ownership group marks another example of owner-user confidence; AI firm Luminous is the building’s current occupant.
In Fremont, institutional capital has followed tenant demand tied to power infrastructure and advanced manufacturing. Hines acquired a fully leased industrial facility at 401 Whitney Place for $27.1 million, citing the building’s power capacity and its tenant, Bloom Energy, as key drivers of the deal. The sale reflects a growing premium on buildings that can support AI-related operations and high-energy use, particularly in submarkets like the Warm Springs Corridor that continue to attract attention from both users and investors.
Even as sales activity improves, broader market fundamentals remain soft. Vacancy and availability rates have continued to rise, and average asking rents are down from year-ago levels. Higher construction costs, compounded by new steel and aluminum tariffs, and ongoing caution from smaller occupiers are contributing to longer deal cycles. Still, buyers are re-entering the market with a clear focus: strategic control, infrastructure access, and long-term alignment with growth industries. As a result, the near-term outlook for Silicon Valley’s R&D market appears more stable, with a measured return of activity likely to continue through the second half of the year.
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