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Newmark Cornish & Carey Says Sluggishness Persists in Silicon Valley Q2 Office Market
Newmark Cornish & Carey’s Q2 2016 Silicon Valley office market report reveals the slow start to 2016 continues. Compressed supplies of product drove unpredictable fluctuations in a market that is more susceptible to incoming space and new construction deliveries.
The Silicon Valley office market experienced an influx of sublease space that was largely offset by a high velocity of absorption in this same niche. Contrary to much of the speculation, the local office market continues to absorb incoming sublease space and hold vacancy below the 10% threshold.
Asking rates continue their gains in nearly all cities, funneling more demand to sublease space hitting the market. Newmark Cornish & Carey researchers say expect to see continued volatility at a city-by-city level the second half of 2016, as the overall Silicon Valley office market remains stable.
Highlights of the report include:
- Vacancy increased for the second quarter in a row, and net absorption took another hit.
- Asking rates ticked up in nearly every city across the Silicon Valley, while vacancy changes were mixed, with only a handful of cities realizing decreases.
- Mountain View topped every other city in the Silicon Valley by logging a $2.76/SF premium over its 2007 asking rate high to reach $6.27/SF in Q2 2016.
- Q2 Silicon Valley asking rate nearing $1.00 premium over 2007 peak
- Office vacancy remained virtually unchanged at 9.2% overall in Q2 2016
- Vacancy remains at healthy levels in all cities, with slight spikes occurring in markets with newly completed office product.
- Demand for price relief and the discounts associated with well-located sublease product have spurred the absorption of 263,342 square feet of sublease space this year alone.
- 75% of all office sublease listings are in the 10,000- or less square-foot range, seeming to indicate space is coming from startups or early stage companies. Yet, just 17% of all available office sublease space is in a downtown market frequently targeted by these same companies.
- Net absorption slumped more significantly compared with Q1, ending down 255,129 square feet. This marks the second consecutive quarter of negative net absorption in the office market, with the yearly totals sinking to a modest level of just over 300,000 square feet.
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