Q1 2024 Silicon Valley R&D Report

The R&D sector remained mainly flat to start 2024. Vacancy increased quarter-over-quarter by .9% to 8.2%, with a majority of vacancy driven by the North San Jose submarket which added a total of 618K SF. Asking rates decreased QoQ by $0.03 to $2.99, however, asking rates have increased YoY, by $0.40.  Net absorption was negative for the 5th consecutive quarter totaling 357K SF, while availability increased by 92K from Q4. Total availability has increased marginally YoY from, 10.5% to 10.8%. This signals while demand has softened, there is still a healthy level of activity to offset space additions.  

The R&D sector has outperformed office markets due to limited remote-work feasibility with the job functions connected to these buildings. However, the sector experienced some softening in 2023 that continued into the first quarter of 2024. Compounding these challenges, the Department of Commerce plans to reallocate funds intended for semiconductor equipment projects, potentially delaying Applied Materials’ $4 billion EPIC campus in Santa Clara, which would be a significant blow to Silicon Valley’s R&D sector.