MARKET DRIVERS
ASKING LEASE RATES rose 8.08% year-over-year (YOY) from $2.60/SF NNN in 2Q20 to $2.81/SF NNN in 2Q21.
NET ABSORPTION rose to 230,238 SF for 2Q21. For the first half of 2021, net absorption is at negative 1.2 million SF.
THE R&D VACANCY RATE increased 27.3% year-over-year from 8.4% in 2Q20 to 10.7% in 2Q21. The vacancy rate in Fremont increased YOY from 7.4% to 8.05%. Likewise, the vacancy rate in San Jose increased YOY from 9.5% to 12.3%.
GROSS ABSORPTION increased 54.9% YOY from 963,720 SF in 2Q20 to 1.49 million in 2Q21. San Jose and Fremont were the most active markets for the year with 623,915 SF and 409,168 SF respectively.
SALES VOLUME nearly doubled YOY from 735,578 SF in 2Q20 to 1.38 million SF in 2Q21.
ECONOMIC REVIEW
HIGH TECH and life science companies continue to fuel requirements for R&D properties. Demand can only increase as California reopens the economy and removes most COVID-19 restrictions.
UNEMPLOYMENT in California stood at 7.5% for May 2021. Santa Clara County recorded the third-lowest unemployment rate in the state with 4.7% during this period.
NEAR TERM OUTLOOK
DIRECT ASKING LEASE RATES are expected to remain steady. While short-term leases remain common, companies are becoming more open to pursuing long-term leases as the economy improves post-COVID. Large YOY gains in sales and leasing volume signals the high demand for R&D space.