The San Jose industrial market began 2026 with steady leasing activity, but demand has not been strong enough to keep pace with deliveries. Vacancy rose to 8.4%, while absorption totaled 546K SF, reflecting active tenant movement but limited offset to new supply. Availability expanded across much of the market, giving tenants more options and increasing competitive pressure on landlords.

 

Flex properties softened the most as tech-related users reduced or restructured space needs. By contrast, logistics remained healthier, and specialized industrial continued to outperform because of advanced manufacturing and power-intensive requirements. Asking rents averaged $26.21 per SF, while annual rent growth fell to -2.1%, showing a clear cooling trend.

Key Findings

• The San Jose industrial market is transitioning into a more tenant-favorable phase as new supply outpaces demand, increasing availability across most subtypes.
• Logistics and specialized industrial assets continue to outperform, supported by durable demand drivers and infrastructure requirements, while flex space faces the most pronounced softening.
• Investor activity is gradually recovering but remains constrained by pricing uncertainty, elevated vacancy, and shifting capital market conditions.

 

San Jose Industrial Supply & Demand Dynamics

Source: CoStar Group, Inc.

 

San Jose Demographics

Source: CoStar Group, Inc.

• Unemployment Rate: 4.4%
• Current Population: 2,015,651
• Households: 703,998
• Median Household Income: $173,135

 

San Jose entered 2026 with mixed economic signals. Tech layoffs and elevated interest rates have slowed overall growth, though gains in healthcare, education, and government have provided some support. The region’s long-term outlook remains favorable because of its deep innovation base, high incomes, and concentration of advanced technology industries. Population growth has resumed after earlier declines, which supports long-term business expansion and household formation. Demand tied to AI, semiconductors, robotics, and clean energy continues to reinforce the market’s strategic importance. Even with near-term volatility, San Jose remains well positioned for specialized industrial demand.

Top San Jose Demand Drivers

Source: CoStar Group, Inc.

• Robotics
• Clean Energy
• Semiconductor
• AI-adjacent users

Population, Labor Force, & Income Growth

Source: CoStar Group, Inc.

 

San Jose Industrial Construction

Construction remains one of the main drivers of market conditions in San Jose. The market has 3.5M SF under construction, with 689K SF delivered and recent completions continuing to pressure vacancy. Developers are still active, but they are becoming more selective as financing costs remain high and lease-up periods lengthen. New projects are increasingly focused on logistics, advanced manufacturing, and power-rich R&D space that aligns with current tenant demand. San Jose-Berryessa, Sunnyvale, and South San Jose remain key development nodes. While the pipeline is still sizable, future starts are likely to be more disciplined and increasingly tied to preleasing or specialized use cases.

 

SF Construction Starts

Source: CoStar Group, Inc.

 

SF Under Construction

Source: CoStar Group, Inc.

 

San Jose Industrial Sales

Sales activity has improved modestly, with total volume reaching $1.8B over the past year. Even so, transaction levels remain below prior-cycle highs as investors continue to navigate a wide bid-ask spread and softer leasing fundamentals. Average pricing stands at $372 per SF, while cap rates are around 6.3%, reflecting higher capital costs and more cautious underwriting. Logistics assets continue to draw interest, though pricing has moderated. Flex and older R&D properties remain under the most pressure, especially where vacancy is elevated. Specialized industrial assets continue to attract stronger buyer interest, particularly where power capacity and redevelopment potential support long-term value.

 

San Jose Industrial Sales Volume

Source: CoStar Group, Inc.

 

By the Numbers

Q1 2026 | Source: CoStar Group, Inc.

• Sales Volume: $1.8B
• Price Per SF: $372
• Cap Rate: 6.3%
• Vacancy Rate: 8.4%
• Rent Growth: (2.1)%
• Asking Rent Per SF: $13.02
• SF Under Construction: 21.4M
• SF Delivered: 1.7M
• SF Absorbed: 6.2M