The South Bay retail market saw an increase in vacancy rates during the second quarter of 2025, rising to 5.2 percent from a six-year low of 4.7 percent in the first quarter. At the same time, asking rents dropped from $2.92 to $2.81 per square foot.
Vacancy rates differed across Silicon Valley. Sunnyvale and Cupertino recorded a rate of 3.1 percent, while North San Jose and Milpitas had a rate of 4.5 percent. Palo Alto, Mountain View, and Los Altos reported a 5.1 percent vacancy rate, and downtown San Jose, south San Jose, Los Gatos, and Campbell registered a rate of 5.4 percent. Santa Clara had one of the highest at 5.5 percent, with Morgan Hill and Gilroy topping the list at 7.5 percent.
According to reporting by Mercury News that cited Cushman & Wakefield data, part of this rise is due to several national retailers leaving the market—including Bed Bath & Beyond and Barnes & Noble.
Despite these challenges for retail landlords in the region, investors are continuing to look at long-term prospects for South Bay properties. “Last December, Arc Capital Partners and Milan Capital Management bought The Plant shopping center in San Jose for $95 million, the Mercury News reported. After that purchase, a supermarket and discount store moved into spaces that had been empty and several new leases at the property were signed.”
Elsewhere in the area, vacant retail spaces have found new tenants recently. “At Almaden Plaza in south San Jose, for example, the former homes of Bed Bath & Beyond and Barnes & Noble have been filled by Hobby Lobby with a 62,000-square-foot lease and Sports Basement renting 86,000 square feet.”
The South Bay’s retail sector continues to face hurdles as it adjusts to shifting tenant demand but shows signs that owners remain committed to filling vacancies over time.
