Rents Still on the Rise in San Jose

It’s no surprise to anyone that San Jose is the most expensive commercial/industrial market in the United States – we live it, so  we don’t need special reports to tell us what we see every day. Prognosticators have been predicting a crash for some time now – the general consensus being that prices can’t go up forever. At some point, there MUST be a correction. What goes up must come down, right?

Well, so far San Jose continues to defy gravity, with the latest reports indicating that San Jose is in the top 10 nationally for industrial rent growth, in markets that have at least 100 million square feet of industrial space. The record continued growth caps a lengthy trajectory of upward price pressures on industrial/commercial space.

At the end of the 2nd quarter 2019, YOY rent growth was 7.5%, with average rent exceeding $23/square foot.

While this growth rate is not the highest San Jose has seen in the last decade, it’s still a strong performance during a time when much of the country is experiencing a softening of economic growth. Since the recession, San Jose’s rent growth rates for industrial space has exceeded 11%, as a result of the rapid technology expansion in and around Silicon Valley.

Currently, San Jose has a vacancy rate of about 5.5% in the metro area, which is hovering near vacancy lows for the entire period of expansion.

Image Credit: Dicklyon via Wikimedia Commons (CC BY-SA 4.0)

By contrast, San Jose has had virtually no office space development in the downtown area in a decade, a trend which was broken in 2019 with the Adobe HQ expansion. Development of industrial space has taken a backseat to office and multi-family development, as the pressures on housing affordability have taken center stage in the community. With limited new development in industrial space and low vacancy rates, landlords have the upper hand when negotiating rates for new leases.

Nationally, much of the country is experiencing an economic softening, which wasn’t unexpected given the cyclical nature of the economy. Concerns over trade wars and tariffs have made many business reluctant to invest in an uncertain market.

With unemployment hovering below 3% in San Jose, local companies have found themselves somewhat constrained in maintaining the pace of hiring, which is why the rent growth is off it’s highest point from 2014/15. Despite these challenges, rent growth in the area’s industrial assets are expected to continue to grow at pace exceeding the national average for the next several years, as Silicon Valley’s technology and innovation firms continue to develop their expansion plans within the community.

Let my team at Keystone Realtors® meet all your real estate needs. We can help you find the perfect investment property to get started, and provide advice on your investing journey. Paul Phangureh has over 16 years of experience in buying and selling in the Santa Clara and San Mateo County areas, specializing in the high-end, luxury market, as well as commercial and multi-use real estate. We can help you navigate the process of getting started with real estate investment. Visit our website at Keystonesv.com for listings and information. You can contact Paul at 650-924-2544, or email at paul@keystonesv.com.

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