The exceedingly tight market for industrial space in Silicon Valley isn’t likely to ease up any time soon, according to a new report.
Just 579,000 square feet of warehouse or manufacturing space is slated to be completed by the end of this year, brokerage firm CBRE said in the report. That’s less than half the excess demand for such space in the region. At the end of the first quarter, prospective tenants were seeking about 1.2 million more square feet of industrial space than was then available, according to the firm’s figures.
Demand surged for such space in Silicon Valley during the pandemic, topping 5 million square feet a quarter for each of the last four quarters, according to CBRE. But the area has little land available for industrial development and some such sites have been converted to other uses, it said.
As a result, the region has “a significant market imbalance,” CBRE said in its report.
Indeed, there are 20 tenants in the market for industrial spaces of 100,000 square feet or larger, according to the report. But only five spaces of that size were available in the region. Overall, while tenants were looking for more than 5 million square feet in the first quarter, just 2.6 million square feet of such space in the area was vacant and only 3.8 million square feet was available, according to CBRE.
With space so severely limited, tenants who were in the market to move to larger facilities are deciding to stay put, CBRE said. More than a third of the top 25 largest industrial leases signed in the region in the first quarter were renewals, according to its data.
Thanks to constrained supply, asking rents are rising, hitting $1.41 a square foot for industrial space in the first quarter, up from $1.39 a foot at the end of last year and below $1.20 a foot in the first quarter a year ago. Asking rents for warehouse space in the area actually fell 4 cents a square foot from the end of last year to $1.35 a foot in the first quarter. But prices for manufacturing space spiked 10 cents per square foot over the same period to $1.49 a foot.
The situation could in coming years, if not immediately. While only 681,737 square feet of industrial space was under construction in Silicon Valley as of last month, 1.9 million square feet of such space has been approved and another 4.6 million has been proposed, according to CBRE. Developers are expected to complete 2.9 million square feet of industrial space next year and another 2.3 million in 2024, the brokerage said.