Q1 2025 Silicon Valley R&D Report
The Silicon Valley R&D market experienced a challenging start to 2025. Vacancy rose by 0.5% quarter-over-quarter (QoQ) and 1.2% year-over-year (YoY). Despite the increase in vacancy, availability remained flat QoQ at 11.2%, below the recent peak of 11.8% recorded in Q3 2024. Average asking rents stayed flat QoQ at $2.84 but have declined by $0.15, or 4.9%, YoY, driven largely by discounts in the Fremont/Newark submarket where asking rents have fallen 22.3% since Q1 2024. Net absorption for the quarter was recorded at negative 615K SF, marking the eighth quarter of negative absorption in the past nine. Since the market peaked in 2022, cumulative net absorption has totaled negative 2.5 million SF.
With the R&D sector already facing headwinds, the U.S. has implemented universal tariffs of 10% on all imports, with additional higher reciprocal tariffs targeting select countries. Given the Silicon Valley R&D sector’s heavy reliance on imported goods and specialized imported equipment, the sector will certainly have higher material costs moving forward. As the implementation and severity of tariffs have evolved since the initial announcement, it is uncertain the how much exposure each specific industry faces as a result of the tariffs. However, the landscape will require firms to adapt their procurement strategies while companies develop long term strategies for acquiring critical inputs, which may impact willingness to make longer term business commitments such as real estate leases.
With the R&D sector already facing headwinds, the U.S. has implemented universal tariffs of 10% on all imports, with additional higher reciprocal tariffs targeting select countries. Given the Silicon Valley R&D sector’s heavy reliance on imported goods and specialized imported equipment, the sector will certainly have higher material costs moving forward. As the implementation and severity of tariffs have evolved since the initial announcement, it is uncertain the how much exposure each specific industry faces as a result of the tariffs. However, the landscape will require firms to adapt their procurement strategies while companies develop long term strategies for acquiring critical inputs, which may impact willingness to make longer term business commitments such as real estate leases.