Q2 2020 Silicon Valley Occupier's Guide - Office
Many changes are taking place in the Silicon Valley office market due to COVID-19. With a downward trend in office demand due to a more remote workforce, shelter-in-place orders, and the prevalent use of Zoom for communications, more spaces are becoming vacant. Not all sectors are experiencing this – biotech and life science are flourishing due to the need for specialized spaces. Sublease space is on the rise, sparking interest in what might be to come in terms of a downward push on rental rates. Although the relationship between increased sublease space and downward pressure on direct rates is generally true for many office markets, the Silicon Valley market has only experienced this relationship in recent times and not historically. Cresa Research can confirm direct and sublease rates have been approaching each other since 2019 Q1, coinciding with sublease availability becoming an increasing proportion of total availability. Regardless of market uncertainty, Q2 ended with several large leases being signed by major tenants.With 2018 representing one of Silicon Valley’s strongest years in recent history, the office market experienced a more moderate start to 2019. The market essentially remained flat for the quarter with negative net absorption of 304,981 square feet, and a vacancy rate of 10.1%. Despite a level market, landlords remained bullish and average asking rates Valley-wide increased to $3.78 Full Service/SF, continuing the upward trend from the 4th Quarter of 2018. Given the amount of tenant demand we are tracking in the market, we expect that vacancy rates will decrease throughout the remainder of 2019, and average asking rates will continue to increase as there is not enough space coming online to meet the tenant demand.