Q1 2023 Industrial Real Estate Report: San Jose, CA
Specializes in providing actionable insights into the commercial real estate space for investors, brokers, lessors, and lessees. He covers quarterly market data reports, investment strategies, how-to guides, and top-down perspectives on market movements.
San Jose, renowned as the heart of Silicon Valley, is widely acknowledged for its thriving technology industry and innovation-driven ecosystem. The city encompasses major industries such as technology and software development, semiconductor manufacturing, biotechnology, healthcare, and clean energy, which contribute to its position as a global leader in innovation and entrepreneurship.
With a population of 1.8 million, San Jose has been experiencing a growth rate of 0.66%. The San Jose industrial real estate market has been tight, with a vacancy rate of 3.5%; however, it's expected that more industrial properties will hit the market later this year.
General Area Overview & Demographics
San Jose, situated in the heart of Silicon Valley, is a thriving city in California known for its technological advancements, diverse culture, and vibrant economy. Spanning an area of about 180 square miles (466 square kilometers), San Jose offers a unique combination of innovation, natural beauty, and cultural richness, with more affordable industrial rents than neighboring cities.
San Jose is often referred to as the capital of Silicon Valley, as it is home to numerous high-tech companies, startups, and innovation centers. It serves as a global hub for technology, attracting top talent from around the world. The presence of companies like Apple, Google, and Adobe fosters a culture of innovation and entrepreneurship.
The largest ethnic group in San Jose is Asian Americans, comprising approximately 37% of the population. The Hispanic or Latino population accounts for around 32%, making it another significant demographic group. White residents make up about 27% of the population, and there are also substantial communities of African Americans, Native Americans, and individuals from other racial and ethnic backgrounds.
The city boasts several world-class museums, including the Tech Interactive, which showcases cutting-edge technology and interactive exhibits. The Winchester Mystery House, a famous architectural curiosity, attracts visitors with its intriguing history and unique design. Nature enthusiasts can explore the stunning landscapes of nearby parks and open spaces, such as Alum Rock Park and the beautiful Municipal Rose Garden.
San Jose embraces its diverse cultural heritage through various festivals and events. The city hosts the annual San Jose Jazz Summer Fest, the vibrant Cinco de Mayo celebration, and the Lunar New Year Parade, among many others, showcasing its multicultural fabric.
Summary of San Jose Industrial Real Estate Performance in Q1 2023
In the first quarter of 2023, the overall vacancy rate for San Jose's industrial real estate market stood at 3.2%. The market had over 3.8 million square feet of vacant space, and the absorption rate was negative at -9,130 square feet.
What are Industrial Real Estate Rents Like in San Jose?
The average asking rent per square foot for San Jose industrial real estate was $1.56 in Q1 2023.
Among the city's submarkets, Sunnyvale recorded the highest rents at $3.73 per square foot, while Morgan Hill/Gilroy had the lowest rates at $1.06 per square foot.
Purchase & Leasing Activity
Leasing activity in the first quarter declined quarter-over-quarter to 209,700 square feet, compared to 399,100 square feet in Q4 2022. However, sales volume increased significantly, with 882,000 square feet sold in Q1 2023, compared to 81,500 square feet in Q4 2022.
Notable Industrial Real Estate Deals in San Jose in Q1 2023
Several notable deals took place in San Jose's industrial real estate market in Q1 2023:
- Terreno Realty purchased 602,000 square feet at 7355-7395 Morton Ave for $186 million.
- C&G California Enterprise acquired 59,800 square feet at 1015 Timothy Drive for $17.9 million.
- Alom Technologies leased 106,100 square feet at 48021 Warm Springs Blvd.
- Managed Facility Solutions leased 63,500 square feet at 122 & 128 Component Blvd.
These are select examples among other activities in the market.
New Industrial Real Estate Development Activity in San Jose in Q1 2023
In Q1 2023, there were 1.4 million square feet of new San Jose industrial real estate under construction. However, new deliveries only amounted to 110,500 square feet, exclusively in the Fremont submarket.
Market Forecast for San Jose's Industrial Real Estate Market
Vacancy rates are projected to remain stable as the industrial market in Silicon Valley experiences growth in the e-commerce and life sciences manufacturing and distribution sectors.
Rents are expected to increase as a substantial amount of new properties are slated to be delivered this year.
Takeaways for Industrial Real Estate Investors
Investment activity remains stable in San Jose, with industrial building sales continuing to climb, demonstrating investors' confidence in the market despite current economic setbacks.
The demand for advanced manufacturing and innovation is expected to persist, suggesting that investors should consider acquiring spaces that can accommodate these types of operations.
Do your research, stay diligent, and happy investing.
Methodology
This report was written with property information from the MyEListing.com platform in corroboration with other freely available commercial real estate research data.
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