Silicon Valley’s commercial real estate market experienced a significant rebound in the third quarter, with leasing activity reaching levels not seen since before the COVID-19 pandemic. According to new data from the Silicon Valley Institute for Regional Studies and JLL, commercial property leasing in Santa Clara County, San Mateo County, and Fremont totaled 20.4 million square feet during the period. This marks a 48.9 percent increase compared to the 13.7 million square feet leased in the previous quarter.
Industry leaders point to artificial intelligence as a key driver behind this surge. “AI is driving a lot of what’s happening in Silicon Valley and San Francisco,” said Phil Mahoney, executive vice chairman at Newmark. “Nvidia, Google, Meta, Microsoft and Apple are all doing well, and that is great for the overall environment. You have the major companies, and you have the rising up of AI-funded growth companies. These have certainly helped to absorb a lot of the better space.”
The upward trend is expected to continue into next year as more tenants return to searching for office space after years of hesitation during economic uncertainty. Recent large leases by Databricks and Crowdstrike in downtown Sunnyvale have contributed to absorbing available inventory.
“Tenants are out right now looking for real deals,” said David Sandlin, executive vice president at Colliers.
Mahoney added: “The market is certainly more positive than it was two years ago. There was a lot of momentum going into the election last year that was lost in the first quarter. But that momentum is now coming back.”
Commercial development also showed signs of recovery with 5.6 million square feet of new space delivered in the third quarter—a 5.5 percent increase over the previous quarter’s completions. Notably, an office building recently completed on Santana Row in San Jose has attracted several tenants.
Despite these improvements, challenges remain evident across Silicon Valley’s office sector. Office vacancy rates declined slightly from their record high but remain elevated at 22.2 percent—more than double pre-pandemic levels and higher than those seen after the dot-com bust era. Laboratory space faces even greater difficulty with vacancies hitting 37 percent due to supply outpacing demand following a recent construction boom.
Asking rents dropped by 7 percent compared to last year—the lowest level recorded in ten years—but net absorption turned positive for the quarter as companies leased more space than they vacated. Colliers reported its pipeline for large users expanded significantly to 11 million square feet from just 2 million during the pandemic period.
