SAN JOSE — Silicon Valley’s office market remained sturdy during the second quarter of 2020 despite widespread coronavirus-linked business shutdowns, a new report from real estate firm CBRE shows — but overall leasing activity was at its lowest level in more than a decade.
The vacancy rate in Silicon Valley for office buildings was 6.7 percent during the April-through-June quarter of this year, a slight increase from the 6.3 percent office vacancy rate during the first quarter stretching from January through March, CBRE reported.
But leasing activity slowed.
“The Silicon Valley office market” experienced “the lowest amount of leasing activity in 16 years,” CBRE stated in its report.
Leasing volumes totaled about 802,400 square feet during the April-June quarter, down a jaw-dropping 31 percent from the overall leasing totals of 1.16 million for the first quarter of 2020.
Asking rents remained stable, an indication that property owners have managed to weather some of the initial storms from the business shutdowns.
During the second quarter, asking rents for Silicon Valley office space averaged $5.49 a square foot per month, unchanged from the first quarter of 2020.
Downtown San Jose, North San Jose, Sunnyvale, Mountain View, Palo Alto, and Fremont experienced rising office vacancy levels during the second quarter compared with the first quarter.
The office vacancy rate in downtown San Jose was 9.7 percent in the second quarter compared with 8.7 percent in downtown San Jose.
Two markets actually experienced a reduction in office vacancies during the second quarter: Milpitas and the ultra-tight Cupertino market, which is home to Apple.
Realty investors continued to buy big office properties, an indicator of strong confidence in the long-term prospects for Silicon Valley.
Among the property purchases:
— CBRE Global Investors, acting through affiliate SPUS9 237 at First Street, paid $173.5 million on June 30 for two North San Jose office buildings with addresses of 4353 and 4453 N. First St., Santa Clara County property records show.
— A group led by Burlingame-based private realty investor John Barrett paid $131.8 million for a downtown San Jose office tower at 160 W. Santa Clara St. on June 29, according to public documents.
— A fund managed by real estate investment firm Kennedy Wilson paid $53.5 million on June 30 for six office and research buildings in south San Jose that front on Great Oaks Boulevard, Santa Teresa Boulevard, San Ignacio Avenue, and Via Del Oro.
The relatively steady vacancy levels and rental rates in Silicon Valley, combined with ongoing purchases by investors of top-notch properties, suggest that Santa Clara County is in decent shape despite the business closures and shelter-in-place orders, CBRE said.
“Silicon Valley is better insulated to withstand the economic effects brought on by the economic shutdown when compared to other markets,” CBRE stated in its report.
