SAN JOSE — The Silicon Valley office market has staged a sudden turnaround on the heels of an unexpected burst of big office deals by Bay Area tech players, boosting the sector to post-coronavirus heights.
The boom in market activity suggests that for the first time in about two years, the South Bay office market has begun to recover from the economic maladies unleashed by the coronavirus outbreak in 2020, according to the new report released by Savills, a commercial real estate firm.
Big tech companies such as Nvidia, Amazon and Snowflake are becoming more active in seeking South Bay office spaces to occupy.
“The leasing market in Silicon Valley experienced a notable boost, driven by the technology sector’s presence and its continued focus on securing large leases,” Savills Research and Data Services stated in its report for the October-through-December fourth quarter of 2024.
The 2024 calendar year produced a slew of huge office rental deals, including leases and subleases.
The rental transactions included:
— Snowflake, 773,000 square feet in Menlo Park.
— Amazon, 217,800 square feet in Mountain View.
— Astera Labs, 154,200 square feet in north San Jose.
— Robinhood, 128,700 square feet in Menlo Park.
— Nvidia, 101,600 square feet in north San Jose.
The South Bay office availability rate was 25.9% during the fourth quarter of 2024, a big improvement from the rate of 27.5% over the final three months of 2023, Savills reported. The availability rate is the combination of empty office space plus space that tenants are offering for sublease.
“Leasing activity in 2024 showed notable improvement, suggesting the recovery in office space is strengthening and will likely remain steady moving forward,” according to the Savills survey. The report defined the Silicon Valley office market as primarily Santa Clara County, Fremont and Menlo Park.
Big problems persisted, however, in downtown San Jose, where more than one-third of the office spaces were vacant, the report revealed.
Downtown San Jose’s vacancy rate was 35.5% in the fourth quarter of 2024, a tiny improvement from the downtown vacancy level of 35.7% in the final three months of 2023, the Savills assessment disclosed.
As severe as the office vacancies were in downtown San Jose, they were somewhat better than the brutally high levels seen in the Mountain View-Los Altos market, where 40% of the office space was empty.
The San Francisco office market remains far worse than Silicon Valley and is even weaker than downtown San Jose. San Francisco posted an office vacancy rate of 36.6% in the fourth quarter of 2024, Savills reported.
Despite these cross currents, Savills painted a picture of a markedly improved office sector in Silicon Valley.
One notable anecdote: Amazon decided to postpone its mandate for workers to return to the office starting this month.
The decision by the e-commerce titan about the return to office in Silicon Valley, however, wasn’t necessarily the result of resistance from Amazon’s workers.
“Amazon’s decision to delay its mandate for employees to return to the office five days a week, due to insufficient space to accommodate its workforce, signals a strong indicator that demand for office space is likely to rise, leading to an uptick in leasing activity,” Savills reported.
Plus a fresh set of players in the fledgling artificial intelligence industry could help fill more spaces.
“A.I. startups will continue to attract venture capital funding and drive increased office space demand around the region,” Savills reported.
The Astera Labs deal on North First Street in San Jose is a case in point. Astera is an artificial intelligence and cloud services company that will triple its office space when it moves to San Jose and exits Santa Clara.
Leasing activity totaled 2.4 million square feet in the fourth quarter of 2024, which was double the 1.2 million squqre feet of office leases in the similar three months of 2023.
The amount of Silicon Valley sublease space shrank dramatically.
Savills estimated that 6.6 million square feet of sublease space was available in the South Bay during the fourth quarter of 2024, down 25% from the 8.8 million square feet of sublease space in the final three months of 2023.
“There are now more bright spots in the tech ecosystem,” Savills reported.