REAL ESTATE NEWS

Leasing momentum is expected to improve in Silicon Valley this year, with support coming from expansion plans from AI and tech tenants. Companies such as OpenAI are reportedly seeking up to 500,000 square feet in Mountain View, according to the market?s Q4 report from Savills.

This comes after a down quarter in Q4 2025, when Silicon Valley reported 1.5 million square feet of leasing activity, a drop from 2.3 million square feet in the prior quarter and 2.4 million square feet in the previous year.

However, last quarter saw a surge in top-heavy tech deals. Major tech tenants accounted for eight of the 10 largest transactions totaling 1.3 million square feet.

Despite the softer fourth quarter, full-year leasing volume for 2025 reached seven million square feet, the most since the pandemic and a 26% increase from 2024.

Nu Nandar Aung, Northern California research manager at Savills, told GlobeSt.com that Silicon Valley?s post-pandemic high in leasing activity last year signaled a meaningful shift in tenant confidence.

?While quarterly volume can fluctuate, the full-year total reflects companies moving beyond short-term uncertainty and making longer-term real estate decisions, particularly among technology and AI tenants,? Aung said.

?Demand has become increasingly selective, with tenants prioritizing high-quality, amenity-rich buildings in prime locations. As a result, top-tier assets continue to outperform, commanding stronger rents or more competitive lease terms while landlord concessions remain a critical tool in facilitating deal flow across the broader market.?

Occupancy Gradually Regaining Momentum

According to CBRE?s Q4 2025 Silicon Valley Office Figures, the market closed the year with an overall vacancy rate of 16.1%, net absorption of 508,413 square feet and average asking rents of $5.60 per square foot (full-service gross). These indicators reflect a market that is gradually regaining momentum after several years of pandemic-era disruption, according to the firm.

Kidder Mathews? Q4 2025 Silicon Valley Office Market Trends report showed a similar vacancy rate of 16.6%, representing a 100-basis-point decline quarter-over-quarter.

The brokerage also reported an availability rate of 17.2%, down 80 basis points from Q3 2025 and 190 bps year-over-year, signaling a meaningful reduction in both direct and sublease space. Leasing activity totaled 1.1 million square feet, slightly below the previous three months but consistent with a market in recovery mode.

Furthermore, with 1.76 million square feet of office space under construction, according to Kidder Mathews, while new supply remains limited, which should help support further tightening of vacancy.

Asking Rents Up in Class A Assets

Yardi Matrix measured overall asking rents increasing from $5.03 per square foot in 2024 to $5.47 in 2025 in Silicon Valley, an 8.7% YoY increase. This is primarily due to strength in Class A assets, even while concessions kept effective rents lower.

Class A rent rose 7% year-over-year to $5.52 per square foot. Despite rising rates, landlords continued offering generous TI packages and free rent to secure tenants, moderating effective rent growth, according to Yardi Matrix.

Ed Del Beccaro, executive vice president and San Francisco Bay Area manager of TRI Commercial Real Estate Services/CORFAC International, told GlobeSt.com that with these lease transaction concessions, landlords are not cutting their contract lease rents.

?This way, the building?s equity value does not decrease, satisfying financial institutions such as lenders and banks,? he said.

AI Tech Brings Desire for Collaborative Space

Steffen Kammerer, executive managing director of CBRE?s Silicon Valley and Peninsula offices, noted that more than half of office and R&D users seeking space are looking for 100,000 square feet or more.

?It?s a sign that large users are returning and desire to bring employees into a collaborative space,? he said. ?The tech sector has also increased demand in industrial space, particularly as they look for space to test prototypes or manufacture products.?

Santa Clara, along with San Mateo County, ranks at the heart of Silicon Valley and is reinventing itself continually, according to Del Beccaro.

?It is the forefront of cutting-edge technologies that utilize AI, Robotics, Cyber Security Machine Learning Advance Healthcare, machine learning, advanced healthcare, data centers, venture capital, R&D, Stanford University and new ways to use technology,? he added.

The market has seen some major deals. This includes LinkedIn's purchase of a 120,000-square-foot building in Sunnyvale for $75 million. Intuitive Surgical completed and fully occupied a major new office project in Sunnyvale, which acted as a massive contributor to occupancy gains.

Fortinet (cybersecurity) and other tech firms made discounted strategic purchases, further tightening the market and Zscaler (an AI platform for security companies) secured a 301,000-square-foot sublease from Airbnb in Santa Clara.

Del Beccaro said the new market trend is the AI ?industrialization? driver, where the requirements are no longer just for ?white-collar? software desks. The 2025?2026 cycle is seeing an "industrialization" of AI.

For example, global semiconductor sales reached a record $400 billion in 2025, with 2026 projected to be even larger, he said.

?This necessitates [include] physical lab space (R&D) in Silicon Valley for chip design and testing,? according to Del Beccaro.

Additionally, major players like OpenAI were reportedly seeking up to 500,000 square feet in Palo Alto or Mountain View, as of early 2026, further increasing the active requirements list and putting upward pressure on the limited supply of Class A assets.

Source: GlobeSt/ALM