According to data provided by Colliers, San Jose’s office market has come to a near standstill in the first quarter of 2023. While the office market has seen the biggest decline, it’s not the only sector struggling in the Bay Area city.
Total sales across all industries for the first quarter were $235 million, down 68.5% year-over-year and 72% quarter-over-quarter. The total area sold in the first quarter of 2023 was over 500,000 square feet, down 85% from the fourth quarter of 2022 and down 71% from the first quarter of 2022.
In the first quarter of 2023, office sales were 38,500 square feet and total sales were $14 million. Sales fell 91% month-on-month and 87.5% year-on-year. This marks a decline of 97.5% quarter-over-quarter and 87% year-over-year.
The most chilling example of an office market slowdown is Google’s decided to cancel its “Downtown West” project, which would have brought millions of square feet of office space to downtown San Jose.
The catalyst for the slow return to the office is clear.
“Like all major cities, downtown San Jose continues to struggle to bring employees back into the office,” said Craig Petersen, Office and R&D Specialist at Kidder Mathews. “Remote work is here to stay for longer than most of us realize. Companies are starting to ask some employees to return to the office, but it’s been a slow process.“
The hospitality sector was the lone bright spot in the report, with total floor space sold up 74.6% in the first quarter of the year and volume up 141%.This could be attributed to a market correction where business travel is finally starting to pick up silicon valley.
In the first quarter, sales of square footage of multifamily homes fell 81.5 percent, and volumes fell 85 percent. Over the same period, industrial fared no better, with a 69% decline in square footage sold and an 82% decline in volume. Meanwhile, retail space sold fell 53 percent, but volumes rose 16 percent.
Compared to the year-ago period, only total square footage sold for multi-family homes increased, but that was less than 1 percent and was offset by a 9 percent decline in sales.
Compared with the rebound in the first quarter, the year-over-year performance of the hotel industry was much worse. Its total square footage sold was down 49%, and volume was down 55%.
Similarly, the total sales area of industrial and retail industries fell sharply by 66.6% and 38.6% year-on-year, respectively, and the sales volume decreased by 65% and 85% respectively.
Poor sales figures and a 14% vacancy rate make it an unattractive proposition for developers.
“It would be crazy to start a project with high office vacancies,” Peterson said.
