Tech company subleases shove vacancy levels higher: Colliers report
SAN JOSE, Calif. — According to a new report, one-fifth of Silicon Valley’s office buildings are empty, the highest level since the last recession, as a result of the tech industry’s push to sublease space.
Colliers, a commercial real estate firm, estimated that 19.8% of office space in Silicon Valley was available for lease or sublease during the third quarter of 2023, from July to September.
According to Derek Daniels, regional research director with Colliers, the 19.8% availability rate — a broad measure of vacant offices — was the highest for Silicon Valley since 2010, at the tail end of the previous recession and financial crisis.
Colliers reported that the availability rate in Silicon Valley was 23.4% in 2010.Available space is primarily made up of offices offered directly by property owners and sublease space marketed by tenants.
In the third quarter, the vacancy rate in Silicon Valley was 12.8%, based on office space offered by property owners through direct leases. Colliers estimated that another 7% of the region’s office space was being made available through a sublease.
“The Silicon Valley office market continued to face headwinds in the third quarter of 2023,” Colliers reported in a new report.
During the third quarter, the amount of Silicon Valley office space that became vacant exceeded the amount of space that was leased by 1.8 million square feet, a startling disparity.
According to Colliers, this easily surpassed the previous record of 1.5 million square feet for the negative office occupancy benchmark set in 2009 during the Great Recession.
“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,” according to Colliers.
According to Colliers, these were the weakest markets in Silicon Valley during the third quarter, as measured by the availability of vacant offices. The following figures represent the availability rates in each market:
— Santa Clara, which has a 29% availability rate. Colliers reported that this is the city’s highest availability rate on record.
— Mountain View received 26.6% of the vote. This is also the market’s highest availability rate.
— 24.4%, Campbell/Los Gatos
— Palo Alto (23.1%).
— 19.7% in San Jose. The previous high for the availability rate in the Bay Area’s largest city was 20.4% in 2010.
— 14.3% Sunnyvale
— 12.9% Fremont/Milpitas
— Cupertino/Saratoga, availability rate of 5.4%.
“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 said in a recently released report.
However, some encouraging signs have begun to emerge, which may help to stabilize the shaky 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,” according to a report by Colliers International.