Silicon Valley R&D Market Remains Strong, According to Cresa’s Q4 2022 Occupier Survey

The research and development real estate market in Silicon Valley – which is roughly bounded by Fremont, South San Jose, Palo Alto and MIlpitas – had a strong end to last year. As explored in its Silicon Valley Q4 2022 R&D Occupier’s Survey released by global commercial real estate advisory firm Cresa, several key market indicators (vacancy rates, average rent and net absorption) suggest robustness of the sector at the end of the year.

“I would say that overall, the Silicon Valley R&D market has remained pretty healthy – some would argue very healthy – through the pandemic and post-pandemic, including in the fourth quarter,” said Bob Badagliacco, senior vice president in Cresa’s Silicon Valley office.

The overall R&D vacancy rate decreased 7.86 percent quarter-over-quarter, dropping from 10.3 percent in fourth quarter 2021 to 8.4 percent in fourth quarter 2022. Rent also remained fairly stable, dropping slightly quarter-over-quarter from $2.59 to $2.56 per square foot. Meanwhile, total availability remained relatively flat quarter-over-quarter, increasing marginally from 12.1 million square feet to 12.5 million square feet, and positive net absorption reached 434,443 square feet.

It is likely that a general slowing of venture capital funding will have future knock-on effects on asking rents, according to Badagliacco. Bay Area venture capital funding for companies needing R&D space dropped to $3.3 billion in the fourth quarter, falling below $4 billion for the first time since third quarter 2019, according to the report. In Q1 2022, later stage funding was $8.5 billion; however, rising interest rates and fears of a slowing economy caused this to contract to $1.8 billion. 

“As rents continue to climb, that will have an impact on corporate spending,” he said. “…Oftentimes, the required improvements for R&D users are not significant enough to build out the right infrastructure or specialized improvements required for manufacturing or life sciences users.”

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