Report: Silicon Valley Office Market Set for Uncertain Times Ahead
Due to a number of factors, the Silicon Valley office market has been struggling as of late. As explored in its Silicon Valley Q4 2022 Office Occupier’s Survey released by global commercial real estate advisory firm Cresa, several key market indicators, such as vacancy rates and average asking rents, suggest uncertain times ahead.
“With the macroeconomic headwinds that hit the economy last year, and a lot of layoffs and things like that, the road ahead for the office market in the Silicon Valley – albeit perhaps not as bleak as in urban markets – is still going to be a challenging couple of years. Most of my office client base is looking to get rid of space, not secure new space,” said Bob Badagliacco, senior vice president in Cresa’s Silicon Valley office.
Average asking rates dropped 3.3 percent quarter-over-quarter, going from $4.20 to $4.06 in fourth quarter 2022, while the overall vacancy rate increased by 13.24 percent quarter-over-quarter. The overall vacancy rate in fourth quarter 2021 was 13.1 percent. Meanwhile, overall net absorption rose to 283,649 square feet.
A combination of rising interest rates, falling valuations and fears of a slowing economy have caused many companies, especially tech companies, to scale back growth plans through layoffs, states the report. Meta laid off 2,200 people during Q4 2022 within San Mateo, Santa Clara and Alameda counties; Cisco laid off 593 employees, while Amazon let go of 263 employees.
One of the more general trends impacting vacancy rates throughout the Silicon Valley is the increasing decision of employees to work from home, though this might not always remain the case, according to Badagliacco
“There are obviously a lot of different opinions out there from company leaders and others in the industry about long-term productivity trends working from home…I have a suspicion that eventually, more people will come back to the office on a hybrid basis,” he said.