After a hiring boom during the pandemic, driven by surging demand for cloud computing, tech companies began implementing hiring freezes and layoffs by mid-2022. These cutbacks have continued into the second half of 2025, particularly in the information sector. Despite these headwinds, San Jose remains a top hub for innovation and technology, attracting a highly-educated workforce. With an average GDP growth rate of 8.3% over the past decade and ongoing investment in artificial intelligence and advanced technologies, San Jose is expected to maintain its position as a leading center for innovation and economic growth.

 

San Jose Demographics

Source: CoStar Group, Inc.

• Unemployment Rate: 4.1%
• Current Population: 2,014,794
• Households: 712,103
• Median Household Income: $166,391

 

Population, Labor, and Income Growth

Source: CoStar Group, Inc.

 

Key Findings

• Although tenant moveouts have led to a high vacancy rate of 8.5%, logistics spaces maintain a stable vacancy rate of 6.8%.
• Construction activity remains elevated near a 20-year peak with 4.7M square feet underway.
• Institutional investors and tech firms like Nvidia and Foxconn continue to make strategic acquisitions, signaling long-term confidence in the market.

 

Market Performance

San Jose’s industrial sector continues to note muted activity, due to cautious tenant behavior and slower economic momentum. Leasing activity remains subdued as logistics and flex tenants delay expansion amid expectations of weaker consumer demand. Total absorption was negative, with around -695K absorbed in Q3 2025, while the vacancy rate rose to 8.5%. The slowdown follows years of strong post-pandemic growth as many companies had expanded their distribution networks between 2021 and 2023.

With elevated construction levels and moderating rent growth, tenants now have greater leverage in lease negotiations. The average asking rent is $25.39 per square foot, with a low rent growth rate of -1.2%. Market fundamentals are expected to stabilize in 2026 as interest rates ease and demand strengthens

 

San Jose Industrial Supply & Demand Dynamics

Source: CoStar Group, Inc.

 

San Jose Construction

Industrial construction in San Jose remains high, with activity nearing a 20-year peak despite a slight slowdown in 2025 deliveries. About 4.7M square feet of space is currently underway, highlighting sustained developer confidence. The flex sector accounts for 1.5 million square feet, led by Intuitive Surgical’s 847,000-square-foot R&D and manufacturing facility in Sunnyvale. Meanwhile, data center construction continues in Santa Clara, though limited power availability may constrain future projects. Logistics development totals 1.8 million square feet, or 3.4% of inventory, surpassing the national average. Developers are increasingly targeting advanced manufacturing and food industry tenants, favoring build-to-suit over speculative projects.

 

SF Construction Starts

Source: CoStar Group, Inc.

 

SF Under Construction

Source: CoStar Group, Inc.

 

Sales

Industrial sales in San Jose are still recording a slowdown, reflecting the effects of higher interest rates. Third quarter sales volume totaled $535M, contributing to about $1.4B in transactions over the past year. Activity has centered on major portfolio deals led by institutional investors and owner-users, while many others remain cautious. Notable transactions include Foxconn’s $128 million purchase of six Sunnyvale flex buildings and Nvidia’s $123 million acquisition of 10 properties near its Santa Clara headquarters. Despite limited activity, prices remain elevated with a sale price of $361 per square foot, underscoring San Jose’s status as one of the country’s most expensive industrial markets.

 

San Diego Industrial Sales Volume

Source: CoStar Group, Inc.