MARKET DRIVERS
Asking lease rates remained unchanged quarter-over-quarter at $3.16/SF NNN, largely due to decreased demand for R&D properties and uncertain economic headwinds.
With many tenants decreasing their SF requirements, gross absorption fell 52.3% YOY from 1.6 million SF in 3Q21 to 742,012 SF in 3Q22.
Despite a noticeable slowdown in the R&D market, total net absorption increased to 1.02 million SF in 3Q22. The San Jose submarket was the primary reason for this, accounting for more than 60% of the total.
Vacancy rates decreased during the quarter to 8.13% in 3Q22, with Fremont and Cupertino posting the lowest rates at under 5% vacancy, while the Campbell submarket ended the quarter with the highest rate at 12%.
Sales volume fell 74.5% YOY from 2.6 million SF in 3Q21 to 674,583 SF in 3Q22 and 32.5% QOQ from 999,691 SF in 2Q22 to 674,583 SF in 3Q22.
Availability rates decreased 19.9% YOY with the QOQ rate dropping only 2.5%.
ECONOMIC REVIEW
Santa Clara County recorded a 2.2% unemployment rate for 3Q 2022 compared to the previous year where unemployment was at 4.9% for 3Q 2021.
San Jose-Sunnyvale-Santa Clara MSA saw a 3.3% increase in manufacturing jobs YOY from 170,800 jobs in 3Q21 to 176,350 jobs in 3Q22.
NEAR TERM OUTLOOK
While R&D properties remained in high demand throughout the pandemic, the market experienced a notable slowdown in 3Q22 as companies began to reduce their space needs and requirements while adjusting to the current financial environment with rising interest rates rise and high inflation.
Availability rates were 7% or greater in Mountain View, Newark, Palo Alto, and San Jose and 10% or greater in Santa Clara, Sunnyvale, Milpitas, and Campbell.
Despite the high availability rates in surrounding cities, Cupertino remained strong with a nearly 0% availability rate with well-established tech companies like Apple Inc. keeping availability rates low.
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