Silicon Valley R&D Tenants Compete for Shrinking Supply

Technology companies are driving leasing momentum in the Silicon Valley R&D asset class and competing for high-quality space in increasingly limited supply, according to a CBRE report.

For the first time in a post-COVID leasing environment, the word 'scarcity' has entered the vernacular of large technology occupiers and their real estate advisors, referring to the dwindling availability of R&D facilities offering desirable attributes including above-standard power, ceiling height, and loading capability, Ben Knight, executive vice president at CBRE, told GlobeSt.com.

"There is a lot of competition for space, so we are beginning to see companies consider taking the most desirable spaces ahead of when they might need it," Knight said.

Silicon Valley Leasing Highest Since 2019

In Silicon Valley, the office market recorded its strongest quarter in years, with leasing activity reaching the highest quarterly total since 2019.

The R&D market posted a second consecutive quarter of occupancy gains. Leasing activity rose nearly 55% year over year, with technology and AI-related companies driving more than half of requirements.

Vacancy rose to 4.5% in the industrial market after 454,000 square feet of new product was delivered. Meanwhile, leasing is up 23.7% year over year, with 45% of demand driven by technology- and AI-related users.

San Fran Has Strongest Quarter in Two Years

In the San Francisco Peninsula, the office market posted its strongest quarter in two years. AI firms now account for 39% of active office demand.

The Peninsula remains one of the Bay Area's tightest industrial markets, with vacancy declining to 4.8% and 182,000 square feet of positive absorption. Notably, no industrial product is under construction, limiting future supply.

For R&D/Life Sciences, leasing activity rose more than 40% year over year, while active tenant demand climbed to 2.8 million square feet. Traditional R&D space continues to outperform life sciences facilities.