The square footage of available offices in Silicon Valley has hit a record high — and could grow worse this year.
Office availability in Santa Clara County, Fremont and Menlo Park at the end of last year grew to a record 27.5 percent, the San Jose Mercury News reported, citing figures from Savills.
In Downtown San Francisco, office availability — defined as empty offices offered for direct lease from a landlord, or marketed for sublease from a tenant — hit a record 36.7 percent. The figure was 21.3 percent in Downtown Oakland.
In Silicon Valley, office availability shot up despite several large office deals, including a 719,000-square-foot sublease last fall by Walmart in Sunnyvale. Sutter Health also inked a deal to lease 324,000 square feet in three buildings in Santa Clara.
In Downtown San Jose, office availability hit 35.7 percent, according to Savills, while nearby Santa Clara reached an office availability level of 30.5 percent.
The office market could get even worse through 2024, the Savills report warned, as “many large technology companies have realized they now have too much space.
“Office availability (in Silicon Valley) remains at an all-time high and is expected to increase even further as return to office rates have lagged the rest of the country,” the report said.
Rental rates have fallen for office buildings across the Silicon Valley region. Asking rates for offices were $5.10 per square foot at the end of December, down from $5.16 at the end of September.
Despite the emergence of artificial intelligence as a dynamic new industry, AI firms aren’t leasing enough space across the Bay Area to offset the growing office vacancies.
“Expect office leasing activity to remain lower (in Silicon Valley) as long as the technology sector, which is the primary driver of space demand locally, remains in a correction,” Savills said.
Local real estate experts say a shift to remote work could afflict the region’s office market for some time.
“Everything points to an extended period to recover from this existential vacancy problem,” Mark Ritchie, president of Ritchie Commercial, told the Mercury News. “This is not due to overbuilding of office space or an economic collapse.
“This is due to a fundamental change in the way people work.”
Last month, the vacancy rate for offices across San Francisco broke a new record at 35.9 percent, with the volume of empty offices reaching 31.5 million square feet in the fourth quarter, a 2 percent rise from the previous three months, according to a preliminary report by CBRE.
— Dana Bartholomew
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