SAN JOSE — Silicon Valley’s office market rallied and improved during the final three months of 2021 as it warded off ongoing economic ailments spawned by the coronavirus, commercial real estate firm CBRE reported Thursday.
The strongest office markets during the October-through-December fourth quarter of 2021, as measured by the lowest vacancy rates, were south San Jose, 3.4%; Cupertino, 4.3% office vacancy; Milpitas, 5.9%; Sunnyvale, 7.4%; Fremont/Newark, 7.5%; Mountain View, 8.3%; and north San Jose, 10%.
The weakest office markets, as measured by the largest vacancy rates, were Santa Clara, 19%; and downtown San Jose, 15%.
“Despite the introduction of the Omicron variant, Silicon Valley responded well,” CBRE researchers wrote in the new report.
The office vacancy rate in Silicon Valley during the October-through-December fourth quarter of 2021 was an improvement from the office vacancy of 11.4% for the July-through-September third quarter, CBRE reported.
Among the major factors that propelled the upswing for the Silicon Valley office market: Tech companies appear to still hunger for big chunks of prime office space despite uncertainties as to precisely when they might return to those offices.
“The market continues to benefit from large-scale users, typically taking down entire buildings or multiple buildings,” CBRE stated in its report.
Facebook app owner Meta Platforms leased 719,000 square feet in a huge Sunnyvale tech campus called Moffett Green. LinkedIn leased an office building totaling 194,600 square feet at 684 W. Maude Ave. in Sunnyvale. LinkedIn also bought adjacent parcels to bolster its expansion in that city.
Plus, tech titans such as Google and Apple are expanding in an array of ways besides leases.
Apple has been purchasing buildings as has Google. And Google is pushing ahead with development efforts in Mountain View, Sunnyvale, north San Jose and downtown San Jose.
During the fourth quarter, tenants occupied 1.87 million more square feet of office space than what they vacated, also known as net absorption.
However, in downtown San Jose, tenants occupied 16,211 fewer square feet of offices than what they vacated, for a negative absorption. For all of 2021, downtown San Jose tenants occupied 352,700 fewer square feet than they vacated, according to the CBRE report.
During all of 2021, Silicon Valley tenants occupied 1.72 million more square feet than they vacated, primarily due to the robust fourth-quarter performance that offset weakness in the prior nine months.
One of the most troubling trends that materialized starting with the wide-ranging business shutdowns in March 2020 to combat the spread of the coronavirus is that tenants abandoned their offices and put big chunks of space up for sublease. The surge in sublease space has dampened the prospects for the office market.
Now, however, it’s possible that the sublease-linked challenges for commercial real estate have begun to abate.
“The fourth quarter marked a pivotal point during the pandemic as sublease supply fell for the first time since the fourth quarter of 2020,” CBRE reported.