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Market Report

San Jose Office Investment Forecast

2020 Outlook

Owner-User Developments Lead Wave of Deliveries; Vacancy Tightening as Tech Firms Expand

Silicon Valley overcomes construction surge as vacancy returns to cyclical low. The surge in development in 2017 pushed office vacancy over 13 percent, but strong demand supported a 230-basis-point drop in available space over the past two years and further tightening is anticipated in 2020. On the face, the sheer volume of office space underway is sufficient to raise concerns of a potential supply overhang in the coming year. However, the largest projects tend to be owner-user buildings, including two Google properties that account for approximately 25 percent of the space underway. Adobe and LinkedIn also spearhead large developments, which is generating pre-leasing levels close to 80 percent. On the demand side, tech firms remain committed to the area despite elevated costs for labor and real estate. Most of the large tech companies have sizable cash reserves, providing a healthy backbone for the market during this mature economic cycle.

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