Silicon Valley’s office vacancy rate mostly treaded water in the first three months of the year, as companies occupied previously leased space and new supply came on the market.
Numbers fresh off the presses from real estate services firm JLL show that tenants occupied 885,000 square feet more than they gave up in the first quarter. That’s up dramatically from Q1 in 2013, when so-called net absorption was just 67,000 square feet, according to JLL.
But because additional new office projects and rehabs came onto the market in Q1, the vacancy rate remained flat. JLL pegs the Valley’s total office vacancy at 16 percent, down a hair from 16.1 percent a year ago. (The figure is up a bit from 15.4 percent in the previous quarter.)
“The addition of new space was the main reason why vacancy was flat,” said Amber Schiada, vice president and director of research out of JLL’s Palo Alto office.
Still, there are some signs that the region’s office market is taking a pause. Exhibit A: There were few big office deals more than 50,000 square feet of existing space in the first quarter in Silicon Valley, though San Francisco’s market was on a tear, with six leases signed north of 100,000 square feet in the city. (That disparity is sure to add fuel to the SF-vs.-Silicon Valley narrative that has been much discussed in commercial real estate circles of late.)
Schiada, however, expressed optimism for an uptick in leasing in the coming quarters: The IPO pipeline is strong and aggregate space requirements are high.
JLL is tracking about 8.3 million square feet of active office requirements in the Valley and mid-Peninsula, including renewals. That’s about in line with the past year’s trend lines.
Also, Silicon Valley is home to 13 startups with at least billion-dollar valuations, and whose collective space requirement is between 420,000 and 770,000 square feet.
Landlords are certainly feeling bullish. Rents rose 30 percent year over year in Mountain View; 28 percent in Santa Clara; and 15 percent in North San Jose.
While the current leasing environment for existing space isn’t exactly on fire, the build-to-suit pipeline retained strength. As we’ve previously reported. Citrix Systems in Santa Clara andLam Research in Fremont are set to occupy sizable build-to-suit space. HGST, a Western Digital company, is moving to add two large new buildings to its existing campus in San Jose. So is Intuitive Surgical and St. Jude Medical Inc. in Sunnyvale.
Other brokerages will be releasing Q1 numbers in the weeks ahead, so we’ll be sure to take a close look at those to assess the general consensus.
Join the Silicon Valley Business Journal and Association of Silicon Valley Brokers as we discuss the latest trends and developments in commercial real estate on April 11.