Silicon Valley office market as a whole continues to grow distressed As companies grapple with the remote working trend and offload underutilized spaces. Cities with tech giants, on the other hand, outperformed the overall market.

Office space utilization in Silicon Valley rose to 20.4% in the second quarter from 17.2% in the previous quarter, according to a report from CBRE. Asking rental prices and leasing activity also fell in the most recent quarter. The markets with the highest vacancy rates were Downtown San Jose and Santa Clara, both at 28%. They also have the highest vacancy rates in Silicon Valley at 26%, and their average asking prices are all under $5, lower than other submarkets.

In contrast, smaller cities with a higher tech content fared much better. Cupertino and Milpitas have about 5 percent vacancy rates, while Sunnyvale has 14 percent and the third-highest asking rent at $6.65. The strengths of these markets are centered around the headquarters or large offices of Meta, Google, and Apple. These companies continue to invest in these markets.

“In Sunnyvale and Cupertino, big tech users boost occupancy and keep working in offices, reducing volatility in vacancy rates,” said Nicole So of Colliers.

“Some cities are doing better than others,” said Kidder Mathews’ Craig Petersen. “Cupertino is the best market, and it’s all about Apple. Apple continues to expand; they just bought a building and are building another. Companies that sell to Apple are active in Cupertino, as are startups funded by ex-Apple employees.”

Sunnyvale and Cupertino also benefit from prime locations on the peninsula.

CBRE’s Mark Christierson explained: “Vacancy rates in Cupertino and Sunnyvale continue to decline due to their respective ideal locations, high quality real estate and easy access to the 101, 85 and 280 freeways.”

Palo Alto and Mountain View had the highest asking market rents at $8.77 and $8.29, respectively. However, those cities have lost some of their luster, with vacancy rates of 26% and 21%, respectively.

“Downtown Palo Alto and Mountain View aren’t as active as we’ve seen in the past,” Peterson said. “They’re always the first to bounce back in a downturn. Since the pandemic, access to Caltrain is no longer a selling point, and office space is very expensive.”

Both San Jose and Santa Clara are free of big tech companies and have decided Google Adding to the market’s woes is the halting of its massive Downtown West project in San Jose. Commuting in these cities is also somewhat difficult.

“I’ve seen some people not wanting to go to Santa Clara because of the traffic on the 101,” Peterson said.

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