Q1 2023 Silicon Valley R&D Occupiers Guide

Over the past few years, the Silicon Valley R&D market has remained resilient despite the impact of the pandemic and remote-work trends as occupiers who require lab, clean room, or manufacturing space typically need their employees onsite to complete their work.  Signs of a slowdown are starting to appear this quarter.  With only 86 transactions, leasing activity is 35% less than the 133 transactions per quarter average over the past two years.  By square footage, leasing activity is following a similar trend.  The 1.2 million SF leased this quarter is 25% less than the 1.6 million SF per quarter average for the past two years.

One telltale sign of a market slowdown is the increase of sublease space.  As companies adjust to a slowing economy with reduced production and lower headcounts, underutilized space is often placed in the sublease market to help recoup occupancy costs.  Over the last three quarters, 675,600 SF has been added to the market with most of this total (399,942 SF) being new sublease space.  If this trend continues it will benefit occupiers looking for lower cost options with a typical sublease “discount”, although it may require more flexibility on layout and infrastructure as most sublandlords will not invest capital for tenant improvements to attract a subtenant.