MARKET DRIVERS
ASKING LEASE RATES have held steady at $2.58 NNN in Silicon Valley for 2020. This represents a slim 1.53% decrease over last year.
R&D VACANCY RATE has increased 17.5% YOY in 2020 to 9.40%. The vacancy rate in Mountain View increased YOY from 7.5% to 9.6%. Likewise, the vacancy rate in Sunnyvale increased YOY from 5.8% to 7.2%.
GROSS ABSORPTION decreased 46% YOY from 6.6 million in 2019 to 3.5 million in 2020. San Jose and Fremont were the most active markets for the year with 952,946 s.f. and 894,474 s.f. respectively. Sales volume has followed a similar trend, falling 37% YOY from 7.8 million s.f. in 2019 to 4.9 million s.f. in 2020.
NET ABSORPTION dropped to negative 1.1 million s.f. This value was a stark contrast to the positive 1.5 million s.f. of net absorption in 2019.
ECONOMIC REVIEW
COVID-19 caused multiple business closures and company layoffs in 2020. Surviving companies adapted by letting employees work remotely. The pandemic prompted restrictions on nonessential businesses and retail properties, sharply dropping economic activity in Silicon Valley. California unemployment stood at 8.8% for December 2020, with Santa Clara County reporting a 5.9% unemployment rate. Employment numbers are expected to improve as vaccine distribution spreads and more businesses open.
NEAR-TERM OUTLOOK
COVID-19 measures have tamped down R&D demand in 2021 as companies allow employees to work from home. Direct asking lease rates are expected to hold firm, while tenants can hunt for deals amongst the growing amount of sublease space. Short-term leases become common as companies gauge how quickly the economy can return to normal. Growth of the life science industry within the Bay Area fuels speculation on converting R&D buildings to properties better suited for biotech companies.