Q4 2023 Silicon Valley R&D Report

Despite headwinds in the commercial real estate market, the R&D sector for Silicon Valley showed resilience in major KPIs throughout the course of 2023. Vacancy remained tight, decreasing 70-bps from 8.0% in Q1 2023 to 7.3% in Q4 2023. Decreases in vacancy were attributed to positive absorption in the direct market while sublease vacancy continued to increase, albeit slowly. Availability increased 20-bps from 10.5% to 10.7% by Q4 2023. Asking rates increased slightly in the market, increasing from $2.70 NNN to $3.02 NNN. However, it is important to note that this is largely due to an influx of newly delivered life science labs throughout the Valley that came with high asking rents in 2023.

For R&D tenants, building profiling has been a particularly hot topic in 2023. Buildings that are two stories or less typically can offer higher PSF power availability to tenants which is becoming increasingly important. Power increases from local PG&E are taking longer to deliver (up to 12+ months). As a result, demand for these types of properties that are highly sought after in the R&D market are experiencing competitive leasing landscapes.