San Jose, California Industrial Market Report
Market Overview
The expansion of Silicon Valley’s technology-driven economy is the driving force behind the industrial market in San Jose. This sector has experienced remarkable growth in the last three decades, leading to a heightened need for particular types of industrial properties. These include data centers and flexible facilities tailored to high-tech companies engaged in research and development and, to a lesser extent, manufacturing. In fact, more than half of San Jose’s industrial real estate is made up of flexible properties, a stark contrast to the national average of just 10%.
Highlights
- San Jose and the broader Bay Area have firmly solidified their position as the country’s largest and most esteemed markets for technology companies.
- Robust demand and limited supply have driven industrial rental rates in San Jose to rank as the second highest in the country, surpassed only by San Francisco.
- Currently, there are approximately 1.6 million square feet of flex space under construction, with the majority of these projects focused on building data centers.
- San Jose stands out as one of the priciest markets in the U.S. for industrial properties. Over the past year, the average transaction price reached $370 per square foot, significantly surpassing the national average of $142 per square foot.
Rents | Vacancy | Construction
For both the flex and logistics property segments, the rental rates in the San Jose market are roughly double the national average.
Although the vacancy rate has increased by approximately 50 basis points over the past year, currently standing at 6.7%, it remains relatively low compared to historical levels. The average asking rents in the market are 1.0% above where they were in 2022 and currently stand at $26 per square foot. The highest rental rates can be found in the limited-supply areas at the heart of Silicon Valley, including Cupertino, Mountain View, and Palo Alto. These areas have a significant number of flexible office and data center properties.
The construction of new industrial structures in San Jose has surged to its highest point in two decades. As of Q4 2023, there are approximately 4.8 million square feet of ongoing construction, marking the highest level seen in the past decade. Approximately 3 million square feet of new space is anticipated to be completed and available within the next 12 months.
Sales
San Jose by the Numbers in the Last 12 Months
Source: CoStar Group
- Vacancy Rate: 6.7%
- Deliveries SF: 606K
- Net Absorption SF: (885K)
- Rent Growth: 1.0%
- Sales Volume: $1.6B
As of Q4 2023, around $1.6 billion of industrial sales have closed in the last 12 months, which is about half of the average annual sales volume during the previous five years. National institutional buyers were responsible for the majority of sales in the last 12 months. Owner-users like Amazon and Apple secured the most significant portion of purchases, but private buyers were also prominently involved, especially in transactions valued at less than $20 million.
