Silicon Valley R&D Market Report

The following reflects Silicon Valley R&D market conditions as of Q2 2026.

MARKET DRIVERS

Silicon Valley R&D fundamentals stayed mixed in the second quarter, as improved leasing activity was offset by continued softness in occupancy. Average asking direct lease rates climbed 1.6% year-over-year to $2.61 NNN, while the vacancy rate edged up to 11.7%, 50 basis points higher than the prior quarter and 10 basis points higher year-over-year. Availability rose to 12.8% during the quarter but remained below the level recorded a year earlier.

Tenant demand strengthened, with leasing activity up 36.4% quarter-over-quarter to 1.1M SF. Through the first half of 2026, leasing volume ran 20.6% ahead of the same period in 2025, an indication that occupier activity is beginning to steady despite still-elevated vacancy.

Net absorption registered negative 518.7K SF for the quarter, pulling cumulative net absorption to negative 232.8K SF. While still negative, that marks a meaningful improvement from the negative 1.2M SF posted through midyear 2025, provided the market avoids further losses next quarter. Investment activity also picked up, with sales volume reaching 3.2M SF year-to-date, up 91.7% from a year earlier. Average pricing held firm at $365.18/SF, above the five-year average of $338.19/SF.

ECONOMIC REVIEW

California’s unemployment rate held at 5.3% in May 2026, while Santa Clara County posted a lower 3.4%, keeping the county below the statewide average even as its labor market continues to normalize from earlier tech-sector volatility. The San Jose-Sunnyvale-Santa Clara manufacturing sector counted 128.3K jobs in May 2026, up 1.1% year-over-year. Trade, transportation, and utilities employment reached 116.5K jobs, up 0.4% over the same period — modest but positive growth across sectors that underpin R&D and advanced manufacturing demand.

NEAR-TERM OUTLOOK

Conditions across the Silicon Valley R&D market remain mixed. Both vacancy and availability moved higher in the second quarter — total vacancy reached 11.7% and total availability rose to 12.8% — driven by a weaker absorption reading of negative 518.7K SF. The year-to-date picture is more constructive, with leasing up 20.6% from the same point last year and cumulative absorption well ahead of 2025 levels.

Recent leasing shows demand is increasingly concentrated among specialized users and functional assets. Infinera Corporation leased 102.3K SF at 6375 San Ignacio Avenue in San Jose, and Etched AI took 100.0K SF at 195 S. Milpitas Boulevard, a high-capacity R&D/manufacturing building with substantial power infrastructure — underscoring how AI hardware and advanced manufacturing users are shaping demand for technically capable space.

Capital markets activity reflects renewed interest in well-located R&D assets priced to current conditions. BGO’s $164.3M acquisition of RioTech R&D Park in North San Jose ranked among the quarter’s largest deals and reinforced investor appetite for campuses tied to hardware innovation and research-oriented tenants. The earlier sale of the Campus at Trimble in North San Jose sent a similar signal, with buyers targeting assets priced below replacement cost that can be repositioned over time.

Elevated vacancy and rising availability will keep pressure on older or less specialized buildings, and tenants retain leverage where space lacks power, loading, lab capability, or flexible buildouts. With 1.2M SF under construction and limited new deliveries this quarter, future performance will hinge less on broad market growth and more on whether specialized R&D, AI hardware, and advanced manufacturing users keep converting requirements into signed deals. The near-term outlook points to a market that is not fully recovered but is showing signs of stabilization, with high-quality, adaptable facilities in core innovation corridors positioned to outperform while older commodity product faces a longer path back.

Frequently Asked Questions

What is the Silicon Valley R&D vacancy rate in Q2 2026?

The Silicon Valley R&D vacancy rate was 11.7% in Q2 2026, up 50 basis points from the prior quarter and 10 basis points year-over-year, according to Kidder Mathews research. The increase was driven by negative quarterly net absorption, even as leasing activity improved. Vacancy ranged widely by submarket, from 3.1% in Cupertino to 14.4% in Mountain View.

What is the R&D availability rate in Silicon Valley for Q2 2026?

The Silicon Valley R&D total availability rate was 12.8% in Q2 2026, up from 11.9% in Q1 2026 but down 50 basis points year-over-year, according to Kidder Mathews research. Availability remains higher than vacancy because it includes space being marketed that is not yet vacant. San Jose carried the highest submarket availability at 17.6%.

How much R&D space was leased in Silicon Valley in Q2 2026?

Gross leasing activity in the Silicon Valley R&D market reached 1.1M SF (1,109,564 SF) in Q2 2026, a 36.4% increase quarter-over-quarter, according to Kidder Mathews research. Year-to-date leasing volume totaled 1.9M SF (1,923,113 SF), running 20.6% ahead of the same period in 2025. The improvement suggests occupier demand is beginning to stabilize despite elevated vacancy.

What was net absorption in the Silicon Valley R&D market in Q2 2026?

Net absorption was negative 518,696 SF in Q2 2026, bringing year-to-date net absorption to negative 232,765 SF, according to Kidder Mathews research. Negative net absorption means tenants vacated more space than they occupied during the period. Even so, the year-to-date figure is a substantial improvement from negative 1.2M SF through midyear 2025.

What are average R&D asking rents in Silicon Valley in Q2 2026?

Average asking lease rates in the Silicon Valley R&D market held at $2.61 PSF per month NNN in Q2 2026, unchanged quarter-over-quarter and up 1.6% year-over-year, according to Kidder Mathews research. Submarket asking rates ranged from $1.77 in Fremont to $5.02 in Palo Alto. Mountain View ($3.98) and Sunnyvale ($2.80) also commanded above-market rates.

How much R&D space is under construction in Silicon Valley in Q2 2026?

Approximately 1.2M SF (1,227,000 SF) of R&D space was under construction across Silicon Valley in Q2 2026, with no new deliveries recorded during the quarter, according to Kidder Mathews research. The largest project is the Intuitive Surgical Campus in Sunnyvale, a 847,000 SF development slated for September 2026. Sunnyvale and Santa Clara account for the entire active pipeline.

What was the largest R&D sale in Silicon Valley in Q2 2026?

The largest Silicon Valley R&D sale in Q2 2026 was RioTech R&D Park in San Jose, a 386,308 SF asset that BentallGreenOak (BGO) purchased from Washington Holdings for $164,250,000, or $425.18 per square foot, according to Kidder Mathews research. Year-to-date sales volume reached 3.2M SF (3,246,475 SF), up 91.7% over the same period in 2025. Average pricing held resilient at $365.18/SF, above the five-year average of $338.19/SF.

What was the largest R&D lease in Silicon Valley in Q2 2026?

The largest Silicon Valley R&D lease in Q2 2026 was Infinera Corporation’s 102,280 SF new lease at 6375 San Ignacio Avenue in San Jose, signed in May 2026, according to Kidder Mathews research. AI chip developer Etched AI followed closely with a 100,000 SF new lease at 195 S Milpitas Boulevard, a high-power R&D and manufacturing facility. Both deals highlight rising demand from AI hardware and advanced manufacturing users.

Which Silicon Valley submarket had the most R&D inventory in Q2 2026?

San Jose was the largest Silicon Valley R&D submarket in Q2 2026, with 38,031,398 SF of total inventory out of 110,050,818 SF market-wide, according to Kidder Mathews research. It was followed by Fremont (17,948,254 SF), Sunnyvale (13,330,257 SF), and Santa Clara (12,968,351 SF). San Jose also recorded the largest quarterly net absorption loss at negative 696,134 SF.

What is the outlook for the Silicon Valley R&D market in Q2 2026?

The near-term Silicon Valley R&D outlook points to a market that is not fully recovered but is showing signs of stabilization, according to Kidder Mathews research. Leasing and sales activity are healthier than last year, while negative absorption and higher vacancy indicate the recovery remains uneven. High-quality, adaptable R&D facilities in core innovation corridors — particularly those serving AI hardware and advanced manufacturing users — are positioned to outperform, while older commodity product faces a longer path to recovery.

Last updated: Q2 2026. Data source: CoStar; EDD; BLS; FRED; Silicon Valley Business Journal; The Registry; The Real Deal. Compiled by the Kidder Mathews Research Group.

Q2 2026 Silicon Valley R&D Market: Key Data Points

Explore our full Silicon Valley R&D market review for deeper insights into leasing trends, sale activity, and submarket performance.

• Leasing Activity Accelerates: Gross absorption reached 1.9M SF year-to-date, up 20.6% from the same period last year, signaling improving occupier demand across the market.
• Vacancy Rate Ticks Higher: Vacancy increased to 11.7% in Q2 2026, rising 50 bps quarter-over-quarter and 10 bps year-over-year.
• Asking Rents Remain Resilient: Average asking lease rates held at $2.61 PSF NNN, unchanged from the prior quarter and up 1.6% year-over-year.
• Sales Activity Surges: Investment sales volume reached 3.2M SF year-to-date, a 91.7% increase compared with the same period in 2025.
• Absorption Improves Despite Remaining Negative: Net absorption totaled negative 232.8K SF year-to-date, a substantial improvement from negative 1.2M SF recorded through midyear 2025.
• Development Pipeline Remains Limited: Only 1.2M SF was under construction market-wide, with no new deliveries recorded during the quarter.

Submarket Statistics

Significant Sale Transactions 2Q 2026

Significant Lease Transactions 2Q 2026

Significant Under Construction