Office Market Report

The San Jose office market continues to show signs of a recovery in the third quarter of 2025. An upturn in tenant demand resulted in the most recent quarter recording the highest leasing volume since 2022. However, a string of tenant downsizings over the past year had a negative impact on absorption, pushing the vacancy rate higher to 16.3%, close to the highest level on record.

Volatility and uncertainty remain important considerations. While some Silicon Valley tech companies, such as NVIDIA, have seen tremendous growth, some of the older stalwarts, such as Cisco and Intel, have faced difficult challenges from global competitors.

The AI segment continues to expand, funded by large investments from venture capital and existing tech giants. But while AI companies are a leading source of new office space demand, the adoption of AI throughout the wider economy may weaken office demand by reducing headcounts. The most recent jobs data show continued layoffs and negative employment growth, particularly in office-using occupations.

Following a high volume of new space deliveries in 2023, construction activity slowed in 2024. Several speculative projects that were due to start have been postponed, and nothing substantial has broken ground in the past two years. Accordingly, the amount of office space currently under construction is the lowest since the Great Recession.

San Jose's vacancy rate increased by 120 basis points over the past 12 months and remains at its highest level in 20 years. Vacancy in 4 & 5 Star buildings stands at 19.9%.

After three years of negative growth, average asking rents stabilized in 2024, and growth has been 2.8% for the past year. Concession packages remain elevated as owners compete to drive occupancy.

The recent increase in leasing activity should translate to positive absorption as new tenants take up space in the year ahead. The vacancy rate is anticipated to move lower while rent growth continues to make moderate gains.