SAN JOSE – The South Bay office market is showing signs of improvement despite continued layoffs within the technology sector and declining demand for space, however the sector is way from healthy, based on a brand new real estate report from JLL.
According to business real estate firm JLL, the general emptiness rate for office space within the South Bay was 21.9% within the second quarter of 2024 (April through June).
This figure represented a slight improvement over the historic high for South Bay office space, which was 22.1% within the third quarter of 2023, from July to September, based on the JLL report.
The emptiness rate within the second quarter of 2024 remained unchanged from the office emptiness level of 21.9% in the primary quarter of this 12 months (January to March).
As emptiness rates in office buildings remain stubbornly high, constructing owners are starting to entice tenants to lease their space with concessions.
“Landlords continue to reduce rents, and both direct and sublease rates are declining,” says JLL’s latest report.
In the second quarter, in comparison with the primary quarter of 2024, asking rents for office space offered directly by property owners fell by 1.4%, while asking rents for sublease space offered by tenants fell by 1.6%, JLL estimated.
One Santana West, a comparatively latest office constructing in San Jose on South Winchester Boulevard across from Santana Row, has been successful in attempts to draw tenants to the property.
In December 2023, Acrisure, a financial services technology company, leased 29,000 square feet at One Santana West and commenced using the space earlier this 12 months.
In April 2024, PwC US Group, an expert services firm, signed an agreement to lease 13,000 square feet of space within the One Santana West office constructing.
Federal Realty Investment Trust, the first owner and developer of the Santana Row mixed-use development and One Santana office constructing, says it’s searching for additional tenants who could take up large portions of the remaining space within the constructing.
Google is currently constructing three large office buildings, all in Sunnyvale, which could provide the search giant with the chance to maneuver some employees from rented offices to the three Google-owned buildings.
The three Google offices under construction have a complete area of 1.3 million square meters. The three office buildings are positioned at 100 and 200 Caribbean Drive and on the corner of West Java Drive and Bordeaux Drive.
Apart from the Google office buildings, there are hardly any latest office buildings within the South Bay.
“The rest of the pipeline is thin,” says the JLL report. “Projects that are on hold are not expected to advance any time soon.”
Office markets across the Bay Area remain in dire straits, largely because of increasing layoffs by technology firms.
In 2022, 2023 and to date in 2024, technology firms have announced plans to chop greater than 45,300 jobs within the Bay Area.
Technology firms, alternatively, have a significantly lower need for office space because they’ve laid off employees within the Bay Area.
The variety of employees returning to offices within the South Bay is increasing, JLL reported, citing data from location analytics firm Placer.ai.
In the primary five months of 2024, Placer.ai's geotracking data found that 62.9% of employees at large tech firms had returned to the office. In the primary six months of 2024, that number rose to 66% of tech employees returning to the workplace.
“Return to the office in Silicon Valley is improving,” JLL said within the report.
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