MARKET DRIVERS
DESPITE DROPPING 2 CENTS since last quarter, asking rates are up 8 cents since this time last year demonstrating that the prices are stable.
ECONOMIC UNCERTAINTY in the tech industry has contributed to gross absorption declining from 2.0M SF in 2Q22 to 427.6K SF in 2Q23.
NET ABSORPTION went from -749.4K SF in1Q23 to -267.7K SF, this is an improvement, but far from where the market was at when the net absorption was 822.9k SF in 2Q22.
THE DIRECT VACANCY RATE increased from 8.5% to 8.9% since the beginning of this year, reversing a trend of decreased vacancy in the area since 2021. The largest drop was seen in Campbell, which fell from 14.2% to 11.7% since last quarter.
SALES VOLUME has increased from 85.3k SF in 1Q23, to 323.8K in 2Q23. Although this is lower than the 692.5K sold in 2Q22, it is good to see an increase from the slow start to the year.
R&D AVAILABILITY remained at 10.5%, which is an increase from 9.9% in 2Q22.
ECONOMIC REVIEW
SANTA CLARA COUNTY’S unemployment rate has remained at 3.2% from the end of 1Q22 to the end of 2Q22. This remains lower than California’s total unemployment rate, which climbed to 4.5%.
SAN JOSE-SUNNYVALE-SANTA CLARA manufacturing sector increased from 176.1k jobs in May 2022 to 180,200 jobs in May 2023.
NEAR TERM OUTLOOK
APPLIED MATERIALS INC. plans on building a $4 billion research facility in Sunnyvale for developing semiconductor manufacturing technology. The 180,000 square feet center will feature a cutting-edge clean room and hopes to facilitate collaboration among university researchers, chipmaker employees, and industry professionals.
AMID THE AI BOOM in Silicon Valley, companies are competing to capitalize on the trend. Semiconductors are vital for advanced AI tools like ChatGPT, and investors are taking note. The industry has been allocated $53 billion in federal funding and has also secured $150 billion in private commitments. One success story is San Jose headquartered Supermicro, the AI-focused server design company has experienced a remarkable 400% surge in stock prices and doubled profits in the past year alone.
THE RISE IN AVAILABILITY AND VACANCY RATES is minimal and falls within the range observed in quarters prior to the pandemic. Additionally, R&D has not been affected in the same way that the office sector has been by the pandemic and work from home policies. These facilities are sought after due to their flexibility to install specialized labs that high tech, biotech, medical device, and other companies need. Although the poor economy has slowed transactions, Silicon Valley remains the leading tech hub, and despite an increase in supply of available spaces, landlords and owners believe the demand is still high enough to justify keeping prices at current levels.
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