San Jose is leading the way as the San Francisco Bay Area's office market appears to be turning the corner in the first months of 2025. The office availability rate in Silicon Valley declined to 17.4% in the first quarter after peaking at 19.1% at the end of 2023.
The reduced availability suggests that San Jose's office sector is ahead of San Francisco's office market, where the availability rate has flattened over the past year but has yet to fall. San Francisco's 26.3% availability rate remains the highest in the nation, with a significant margin over Houston, which is in second place with an office availability rate of 20.6%.
Nevertheless, San Francisco also appears to be trending toward a recovery ahead of the East Bay, where office availability continues to increase. The East Bay's office availability rate is 17.6% in the first quarter, an increase of 100 basis points over the past 12 months.
In San Jose, occupancy gains in higher-quality, four- and five-star-rated office buildings were primarily responsible for shrinking the availability rate, thanks to increased leasing activity in these premium properties. One of the largest office deals of the past year in San Jose was flexible workplace provider WeWork and e-commerce giant Amazon partnering on 217,000 square feet of space at 401 San Antonio Road in Mountain View. Amazon has been a WeWork enterprise member and this deal was structured as a licensing accord with the sublandlord. The property is owned by Brookfield Properties as part of its mixed-use Village at San Antonio Center development.
The reduced office availability in San Jose also reflects a decrease in tech companies' downsizing activity. Negative net absorption, the net change in occupancy, spiked in 2023 as a large number of Silicon Valley tech companies put office buildings up for sublease across the market.
Some office properties that were previously made available for sublease have since been withdrawn. For instance, in 2024, Proofpoint made two buildings available for sublease in Sunnyvale. One of the buildings, 625 N Mary Ave., remains available, but the listing for the other, a 121,000-square-foot office at 925 W Maude Ave., has been removed.
The improving leasing momentum for the region's office markets is backed by an increase in the number of staff returning to offices and higher investment in technology businesses, a major component of which is venture capital investment in AI companies.
However, demand for office space in the Bay Area still faces challenges from continued layoffs, recessionary pressures, and the threat of restrictions on international immigration, which is the source of a large part of the Silicon Valley workforce. These considerations will play a major part in determining whether or not the recovery in the Bay Area's office market continues in the year ahead.
