South Bay office market improves a bit but tech-tied vacancies persist
SAN JOSE — The South Bay office market is showing signs of improvement amid ongoing tech layoffs and shrinking of space requirements, but the sector remains far from healthy, a new JLL real estate report shows.
The total vacancy rate for office space in the South Bay was 21.9% in the April-through-June second quarter of 2024, according to JLL, a commercial real estate firm.
That figure was a tiny improvement from the all-time high total office vacancy rate for the South Bay of 22.1% that was recorded in the July-through-September third quarter of 2023, according to the JLL report.
The vacancy rate in the second quarter of 2024 was unchanged from the 21.9% office vacancy level in the January-through-March first quarter of this year.
With office vacancies remaining stubbornly high, building owners are beginning to dangle concessions as a way to entice tenants to rent space in their properties.
“Landlords are continuing to ease on rents with both direct and sublease asking rates declining,” JLL stated in its new report.
In the second quarter compared with the first quarter of 2024, asking rents for office spaces offered directly by property owners fell 1.4 % while asking rents for sublease spaces offered by tenants fell 1.6%, JLL estimated.
Asking rents for offices averaged $5.53 a square foot per month in the second quarter of this year, according to JLL.
One Santana West, a relatively new San Jose office building on South Winchester Boulevard across the street from Santana Row has encountered success in attempting to entice tenants to the property.
In December 2023, Acrisure, a financial services tech firm, leased 29,000 square feet in One Santana West and began occupying its space earlier this year.
In April 2024, PwC U.S. Group, a professional services firm, struck a deal to lease 141,000 square feet in the One Santana West office building.
Federal Realty Investment Trust, the principal owner and developer of the Santana Row mixed-use neighborhood and the One Santana office building, says it is seeking more tenants that could take big chunks of the remaining space in the building.
Three big Google office projects are under construction, all in Sunnyvale, which could provide sites for the search giant to shift some workers from offices that the company leases into the trio of Google-owned buildings.
The three Google-owned offices under construction total a combined 1.4 million square feet. The three office buildings are at 100 and 200 Caribbean Drive and the corner of West Java Drive and Bordeaux Drive.
Beyond the Google office buildings, office construction in the South Bay is minimal.
“The remainder of the pipeline is slim,” JLL stated in its report. “On-hold projects are not expected to proceed any time soon.”
Office markets throughout the Bay Area remain in dire shape, primarily in the wake of widening job cuts launched by tech companies.
In 2022, 2023 and so far in 2024, tech companies have revealed plans to slash more than 45,300 jobs in the Bay Area.
Tech companies, in turn, have a greatly reduced appetite for office space since they have been trimming workers in the Bay Area.
The number of workers returning to offices in the South Bay is rising, JLL reported, citing data compiled by Placer.ai, a location analytics firm.
During the first five months of 2024, Placer.ai geo-tracking information found that 62.9% of the employees of major tech companies had returned to the office. Over the first six months of 2024, that number had risen to 66% of tech employees who were heading back into their workplace.
“Return-to-office in Silicon Valley is improving,” JLL stated in the report.