IT IS THE BEST OF TIMES and worst of times for commercial real estate and development in Silicon Valley, according to the newest quarterly report from economic think tank Joint Venture Silicon Valley.
The good news is Silicon Valley developers completed 5.6 million square feet of new office and industrial space in the first nine months of 2025, the fastest growth rate since 2021, according to the report. The bad news: Commercial footage under development fell to 4.5 million square feet, down 45% from the end of 2024 and down 79% from its most recent peak in 2021 — the lowest level since 2013.
Commercial leasing in the first three quarters of the year hit 20.4 million square feet, on track for the highest annual volume since 2018.
Vacancy rates, while improved slightly to 22% from 23% in the second quarter, are more than double the pre-pandemic rate of 2019 and exceed the peak levels of the dot-com bust in the early 2000s.
“Silicon Valley has a split personality right now,” land use consultant Bob Staedler told San José Spotlight. “This report just confirms what we’re seeing on the ground.”
Commercial real estate and development — often regarded as a proxy for the region’s overall health — isn’t in crisis and property values aren’t dropping, Staedler added. At the same time, the new construction pipeline is shrinking because vacancy rates are more than double what’s considered normal.
Uncertainty weighs on investment
Russell Hancock, Joint Venture’s president and CEO, said Silicon Valley — along with the rest of the nation — is feeling the effects of inflation and overall confusion on where government policies are headed.
“In uncertainty, no one wants to invest,” Hancock told San José Spotlight. “Nobody wants to make any big bets right now.”
Staedler and Hancock expect the commercial property market to recover over time, driven by new industries such as artificial intelligence along with the gradual return to working in the office. Some older office buildings will come off the market through conversion into multifamily housing.
There are also a few immediate bright spots for building owners and developers.
“In uncertainty, no one wants to invest. Nobody wants to make any big bets right now.”
Russell Hancock, Joint Venture Silicon Valley
“We still have a lot of inventory to sort through, but we’ve seen the turnaround actually start as early as the first quarter of 2024,” Alexander Quinn, senior director of Northern California research at JLL, told San José Spotlight. The real estate firm co-authored the third quarter report with Joint Venture.
While office buildings represented just 22% of new commercial construction in Silicon Valley last year, down from 55% in the prior four years, lab and industrial space has shot up to more than two-thirds of all new development because of rapid growth in life sciences and advanced manufacturing.
Quinn pointed to robotics and drone makers as one highlight of this new demand, because Silicon Valley can uniquely bring together the hardware, software and AI engineering talent needed to get these new technologies literally off the ground.
Contact Mike Langberg at mike@langberg.com.
This story originally appeared in San Jose Spotlight.
The post Silicon Valley real estate development sinks to lowest level in more than a decade appeared first on Local News Matters.