Office Vacancy Rates Decline Again in San Jose
Continuing the long-standing trend that began in 2012, the San Jose office market closed 2019 with occupancy growth dwarfing supply growth by nearly 1 million square feet.
According to CoStar, occupancy grew by 2.4 million square feet in 2019, while supply only grew by 1.4 million square feet. Accordingly, vacancy rates dropped to 8.4%. Vacancy rates have been lower than the national average since 2012, with demand outpacing the ability of the area to increase supply. The Bay Area has some of the lowest vacancy rates in the United States.
Space availability is lowest in the three western-most tech hubs – Silicon Valley, San Francisco, and Seattle. The situation isn’t likely to be resolved soon, as the major tech players continue to expand past all expectations.
According to CoStar, inventory growth is expected to continue its rapid expansion into 2020. The anticipated project completions for the year already exceed the last two years combined. However, this new capacity will barely make a dent in demand, since most of the planned completions have already been pre-leased. Tech companies are not waiting until completion to jump on new space, with net absorption matching the increases in supply in lock-step.
CoStar’s forecasting, based on pre-lease commitments already on the books, anticipates that vacancy rates will remain under 10% throughout 2020.
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