A Mountain View office just traded at $875 per square foot
Tishman Speyer sold 400 Castro St. in downtown Mountain View to San Francisco based Spear Street Capital for $121.5 million. The building runs about 138,700 square feet, which puts the price above $875 per square foot against a Silicon Valley office average closer to $480 per foot over the past year, according to CoStar. Law firm Fenwick & West anchors more than 80 percent of the building and recently subleased a floor to the AI chip company Groq.
That is a large premium for an office asset in a market that spent four years being written off. It is worth understanding why, because the same forces are moving apartment fundamentals in the same submarkets, and that is the part of this story that affects what your building is worth.
The money behind it: $366 billion into California startups this year
PitchBook data reported by the Wall Street Journal show more than 4,000 California based startups have raised roughly $366 billion in venture capital so far in 2026, more than triple the total raised across the other 49 states combined. OpenAI accounted for $122 billion of it in March and Anthropic for about $95 billion across two rounds.
That capital turns into payroll, and payroll turns into housing demand. Earlier this year OpenAI took an entire five building Mountain View campus at 350 and 380 Ellis St., roughly 450,000 square feet. In January, Rockwood Capital sold a five building Mountain View office complex for $193 million, the city's largest office sale since values began sliding in 2021.
Office leasing is a leading indicator for apartment demand
Office absorption tells you where employers are putting desks. Apartment absorption follows roughly two to four quarters behind, because people sign leases after they take jobs. When a tenant like OpenAI commits to 450,000 square feet in Mountain View, that is several thousand workers who will need housing within a commute of the Peninsula and the South Bay.
The relevant question for an apartment owner is not whether office pricing recovers. It is whether the housing supply exists to absorb the workers. In San Jose, it does not.
San Jose delivered zero new apartments over the past year
CoStar's San Jose multifamily data through the third quarter of 2026 shows deliveries over the trailing twelve months at zero units, a trough reached in the second quarter. Net absorption over the same period was 2,791 units. Demand arrived and no new supply met it.
The results follow from that. Metro vacancy sits at 3.1 percent against a 5.0 percent historical average. Effective rent growth over the past twelve months reached 9.9 percent, against a historical average of 1.9 percent. Average asking rent is roughly $3,468 per unit. There are about 4,985 units under construction, a little over 3 percent of inventory, and almost none of it delivers before 2027.
North San Jose is the tightest submarket in the metro
If you own in North San Jose, the numbers are tighter still. Vacancy in that submarket is 1.2 percent, the lowest ranking in the metro, which works out to roughly 156 vacant units across 13,196. Effective rents run about $3,818 per unit, or $4.17 per square foot, with effective rent growth near 12 percent and concessions at six tenths of a percent. Concessions that low mean landlords are not buying occupancy. They do not have to.
A caution on pricing that most brokers will not put in writing
Market cap rates in San Jose are running near 4.6 percent while the ten year Treasury sits near 4.80 percent. That is negative leverage. Buyers paying today's prices are underwriting rent growth to make the deal work, not current income.
CoStar forecasts further cap rate compression toward the low 4s by 2030, and forecasts rent growth decelerating from this year's high single digits toward roughly 5 percent in 2027 and about 2 percent by the end of the decade. Both can be true, but if you are buying, understand which of the two assumptions your return actually depends on. Trailing twelve month sales volume was about $3.3 billion, with pricing ranging from roughly $483,000 per unit at Meridian to about $700,000 per unit at Misora at Santana Row. That spread is wide enough that comp selection decides the answer.
San Francisco is running the same supply squeeze from a different starting point, with roughly 1,400 units delivering this year and vacancy tightening toward 3.5 percent. The Bay Area does not have one apartment market right now. It has several, and they are tight for different reasons.
What this means if you own South Bay apartments
If you are holding, you are in the strongest rent growth environment San Jose has produced in decades, with no new competitive supply arriving until 2027. Push renewals and protect occupancy rather than chasing the last dollar of asking rent.
If you are selling, the combination of 1.2 percent submarket vacancy, double digit effective rent growth, and zero recent deliveries is close to the cleanest story you can hand a buyer. It also has a clock on it, because roughly 5,000 units are under construction and the growth forecast decelerates from here.
If you are buying, do not underwrite the last twelve months forward. Buy the in place rent roll and treat the office recovery as upside rather than as an assumption.
Key takeaways
- 400 Castro St. in Mountain View sold for $121.5 million, above $875 per square foot, roughly 80 percent above the Silicon Valley office average of the past year.
- California startups raised about $366 billion in venture capital in 2026 to date, more than triple all other states combined, and that capital is converting into Peninsula and South Bay payrolls.
- San Jose delivered zero apartment units over the trailing twelve months while absorbing 2,791, driving metro vacancy to 3.1 percent.
- Effective rent growth reached 9.9 percent over twelve months against a 1.9 percent historical average.
- North San Jose vacancy is 1.2 percent, the lowest in the metro, with effective rent growth near 12 percent and concessions under 1 percent.
- Cap rates near 4.6 percent sit below the ten year Treasury, so current pricing depends on continued rent growth rather than on in place income.
Frequently asked questions
Why does a Silicon Valley office sale matter to apartment owners?
Office leasing and investment sales tell you where employers are committing to put people. Apartment absorption tends to follow two to four quarters later. A market where institutional buyers pay $875 per square foot for office is a market where employers expect headcount growth, and headcount growth is apartment demand.
How much new apartment supply is coming to San Jose?
About 4,985 units are under construction, roughly 3 percent of inventory, with very little delivering before 2027. Trailing twelve month deliveries were zero. North San Jose has about 1,140 units under construction in a single project, the highest share of inventory of any submarket.
Is San Jose multifamily still a buy at these cap rates?
It depends on what you are underwriting. At roughly 4.6 percent, market cap rates are below the ten year Treasury, so the deal works on rent growth rather than on day one income. CoStar forecasts rent growth decelerating from high single digits this year toward about 5 percent in 2027. Buyers comfortable with a longer hold and negative leverage in year one have a case. Buyers who need current yield generally do not.
Which South Bay submarket has the tightest apartment fundamentals?
North San Jose, at 1.2 percent vacancy with roughly 156 vacant units across 13,196, is the tightest in the metro, with effective rents near $4.17 per square foot and effective rent growth around 12 percent.
Let us talk about your building
I have spent 18 years selling apartment buildings throughout the San Francisco Bay Area. If you own in San Jose, the Peninsula, or the East Bay and want to know what these numbers mean for your specific property rather than for the market in general, reach out.
Philip Batlin
Managing Director Investments, Marcus & Millichap
750 Battery Street, Fifth Floor, San Francisco, CA 94111
Office (415) 625-2189 | Cell (415) 254-7071
[email protected]
CA DRE Lic. 01873218
Sources: CoStar Group, Inc., San Jose Multi-Family Market Report; CoStar News; PitchBook via the Wall Street Journal; Marcus & Millichap Research Services. Sale details on 400 Castro St. as reported by CoStar News.
