IRR-San Jose Mid-Year Viewpoint 2015 Local Market Report - Industrial
The Silicon Valley industrial market witnessed declining vacancy throughout the past year and currently stands around 5%. Positive net absorption in the market over the past year was a substantial 3.6 million square feet. However, occupancy growth has drastically declined in early-2015 due to the lack of quality space on the market. Approximately 75% of the market’s vacant space suffers from various degrees of functional obsolescence as this product is 25 years or older. This fact is impacting deal activity and occupancy growth, while also having an upward impact on rental rates.
Rental rates in the Silicon Valley industrial market increased approximately 16% over the past year. As demand is projected to continue to outpace supply in the foreseeable future, rental rates are projected to continue rising. Helping the rise of rental rates will be the addition of higher quality space to market that is in the pipeline.
Large spaces for expansion are increasingly becoming rare in the market and most deal activity has been in the form of lease renewals. Conditions are primed for speculative industrial development in the Silicon Valley market. All projects under construction in the past year were leased before they were completed. The market added over 1.7 million square feet of product over the past year, which is the highest level since 1997. Despite the large additions to supply, the overall vacancy rate declined. Due to the limited amount of quality space, occupancy growth in 2015 will be driven by new additions to supply.
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IRR Mid-Year Viewpoint 2015 comprises a National Overview report and 300+ two-page Local Market Reports for all key property types as well as additional resources, including metrics methodology, graphs, and tables; these free reports may be downloaded from IRR’s site here.