Office Sublease Space and Rents Rise in Silicon Valley

Silicon Valley landlords have a record number of offices up for sublease — yet firms have jacked up the cost of subleases.

Available offices for sublease in Silicon Valley were a record 7.6 million square feet in the third quarter, yet asking average monthly rates rose to $5.22 per square foot, from $5.18 during the previous period, the Silicon Valley Business Journal reported, citing a report from Savills.

Savills blamed the record number of subleases on the commercial real estate industry’s over-dependence on the technology sector, which has shrunk through mass layoffs and caused companies to assess their real estate needs. The brokerage expects conditions to continue into next year.

But it offered no explanation for the increased rental rates during an influx of available offices.

Silicon Valley leasing activity from July through September was 700,000 square feet, compared to 1.7 million square feet during the same time last year, according to London-based Savills.

Office leasing in the third quarter fell to half of the five-year quarterly average as measured by square feet.

The region’s total availability rate — the vacant offices combined with available offices for sublease — was 26.6 percent, the same as the previous quarter. Savills calculated that there is now an additional 3.1 million square feet on the market compared to a year ago.

Offices in Downtown San Jose had the highest availability rate at 35.9 percent compared to the Silicon Valley average, according to Savills. The recent completion of 200 Park, a new Class A office skyscraper with nearly 1 million square feet, may have increased that rate.

Sublease rental rates across Silicon Valley varied, according to Savills.

Average asking rents in Menlo Park ($7.26 per square foot), Palo Alto ($7.39) and Mountain View/Los Altos ($6.47) were above the Silicon Valley average of $5.22 per square foot, while asking rents in Santa Clara ($4.50), Downtown San Jose ($4.44) and Fremont ($2.71) were lower.

— Dana Bartholomew