According to Cushman & Wakefield's latest Silicon Valley's Office and R&D sector report, Silicon Valley's tech space is off to a sluggish start in 2019, after having combined for a robust 2.85 million square feet (msf) of occupancy growth in 2018 -- largely stemming from the office sector.
While the office market did continue its growth trend reporting another 269,000 so of positive net absorption in the first quarter, the R&D sector finished with a negative 265,000 sf, leading to a virtual wash between the two sectors. Notably, both sectors maintain very healthy single-digit vacancies coupled with rent growth, while demand remains strong.
"Historically, the early part of the year can start slow in the Silicon Valley commercial real estate market and that is exactly what happened in 2019," said Julie Leiker, Cushman & Wakefield's Market Director for Silicon Valley. She added, "Not unexpectedly, the performance of Silicon Valley's R&D sector in the first quarter was lackluster when compared to its substantial second-half growth trends of 2018. That said, R&D vacancy is still under 10.0%, the percentage of sublease space is dropping to now 17.6% of market availability, and asking rents continue to climb."
The report noted that the addition of the 546,000-sf HPE Campus in the Stanford Research Park was a significant contributor to the level of R&D occupancy loss in the first quarter.
Leiker added, "Meanwhile, office vacancy continues to dip further into single-digit territory now at 9.3%, down from 9.6% at year-end 2018. However, sublease space in this sector rose yet again, now accounting for nearly a third (32.4%) of total office availability."
According to the report, the most significant new office sublease put on the market was a block of 162,000 square feet (sf) from 8X8 at Coleman Highline. And though not yet included in vacancy statistics, the report identified another sublease block now being marketed, Splunk is subleasing 150,000 sf at Santana Row in West San Jose--the brand new 300,000-sf building is still under construction and will be ready for occupancy in November 2019.