SAN JOSE — One-fifth of Silicon Valley’s office buildings are empty, the highest such level since the last recession, one of the grim side-effects of the tech industry’s push to sublease space, according to a new report.
During the July-through-September third quarter of 2023, 19.8% of the office space in Silicon Valley was available to be leased or subleased, estimated Colliers, a commercial real estate firm.
That 19.8% availability rate — a broad measure of empty offices — was the highest for Silicon Valley since 2010, at the tail-end of the last recession and the financial crisis, according to Derek Daniels, regional research director with Colliers.
In 2010, the availability rate for Silicon Valley was 23.4%, Colliers reported. Available space consists primarily of offices being offered directly by property owners and sublease space being hawked by tenants.
The Silicon Valley vacancy was 12.8% in the third quarter, in a measure of office space the property owners are offering through direct leases. Another 7% of the region’s office space was being made available through a sublease, Colliers estimated.
“The Silicon Valley office market continued to face headwinds in the third quarter of 2023,” Colliers stated in the new report.
One forbidding occurrence during the third quarter: The amount of Silicon Valley office space that became empty exceeded the amount of space that was leased by 1.8 million square feet, an eye-popping chasm.
That easily topped the prior record of 1.5 million square feet for the negative office occupancy benchmark that was set in 2009 during the Great Recession, according to Colliers.
“Office demand decreased as occupiers navigated developing trends in remote work and return-to-office while the technology sector has not returned to its pre-COVID hiring trends after mass global layoffs,” Colliers stated.
Measured by the availability of empty offices, these were the weakest markets in Silicon Valley during the third quarter, according to Colliers. The numbers reflect the availability rates in each market:
— Santa Clara, 29% availability rate. This is the highest availability rate on record for this city, Colliers reported.
— Mountain View, 26.6%. This is also the highest availability rate for this market.
— Campbell/Los Gatos, 24.4%
— Palo Alto, 23.1%
— San Jose, 19.7%. The prior peak for the availability rate was 2010, when it was 20.4% for the Bay Area’s largest city.
— Sunnyvale, 14.3%
— Fremont/Milpitas, 12.9%
— Cupertino/Saratoga, 5.4% availability rate.
“The Silicon Valley office market is expected to face constraints in the coming quarters considering low trends in return-to-office, a cautious venture capital environment, rising vacancies and uncertainties in the economy,” Colliers stated in its new report.
However, some hopeful signs have begun to emerge that could help stabilize the wobbly Silicon Valley office market.
“As companies begin to enforce hybrid schedules and with the ever-present threat of layoffs, workers may be motivated to return to the office, which would improve office occupancies,” Colliers said in the report.