Downtown San Jose skyline, view towards the southwest with The Tech center and two construction cranes visible at the 200 Park Avenue office tower project site. Silicon Valley’s office market has begun to recuperate from the economic afflictions spawned by the coronavirus, a snapshot by commercial real estate firm Colliers shows.
SAN JOSE — Silicon Valley’s office market has begun to recuperate from the economic afflictions spawned by the coronavirus, a snapshot by commercial real estate firm Colliers shows.
One hopeful sign: Office rents in the Silicon Valley have reached a new peak, Colliers, a commercial real estate firm reported in a preview of the company’s third-quarter report on the region’s market.
“Silicon Valley office asking rents are averaging $5.35” a square foot, said Lena Tutko, Colliers research director.
That monthly rental price of $5.35 is “the highest on record” for Silicon Valley, Tutko added.
Colliers defines the Silicon Valley office market as the combination of Santa Clara County and Fremont.
“Silicon Valley is absolutely emerging from the doldrums of the pandemic and stay-at-home mandates,” said Sean Toomey, a Colliers senior vice president. “This is further noted by increases in traffic on our Silicon Valley freeways, ridership on Caltrain, and in tenant touring as many companies prepare for a projected January return-to-work environment.”
Among the positive indicators highlighted by Colliers for the July-through-September third quarter of 2021:
— Rents rose during the quarter in all product types, which include office, research and industrial space.
— Office and research space vacancies decreased.
— Office leasing transactions topped 2 million square feet for two consecutive quarters.
— The research and industrial markets showed increases in occupancy.
Sublease space is starting to decrease. Sublease space for all three product types, office, research and industrial, totaled 9.3 million square feet in the third quarter. That’s down from 9.8 million square feet in the April-through-June second quarter of 2021.
The economic impact from the coronavirus caused an increase in sublease space in the wake of government-ordered shutdowns of an array of businesses, including many types of in-person office activities.
With so many employees working from home, some companies attempted to sublease their empty office spaces due to the uncertainty of returning to the office.
The big jump in sublease space has become a drag on the office market throughout the Bay Area and elsewhere around the country.
Among the top property purchase and leasing deals for the third quarter:
— In August, HQ @ First, a San Jose tech complex with three office towers next to Highway 237 near North First Street, was bought in a $535 million deal.
— In September, FedEx leased 179,600 square feet of industrial, logistics and warehouse space at 1605 Industrial Ave. in north San Jose.
“Our Silicon Valley residents have become more willing to venture back out into the community,” Toomey said. “Landlords and tenants are now connecting to ensure that work environments are safe and socially distanced and ready for the return.”
