Economy: Unemployment Rate Falls
Silicon Valley’s retail market continued to benefit from one of the nation’s strongest consumer bases. Though population growth has been relatively flat, median household income climbed 6.8% year-over-year (YOY) to $184,800, the highest in the nation. The unemployment rate fell 60 basis points (bps) YOY to 3.8%, and nonfarm employment increased by 18,300 jobs. However, the tech sector continued to face headwinds, with office-related layoffs totaling more than 2,200 jobs in the third quarter.
Supply or Demand: Vacancy Rate Declines
Silicon Valley retail fundamentals continued to tighten in the third quarter. The vacancy rate declined to 4.8%, down 10 bps from 4.9% in the prior quarter and 80 bps from 5.6% one year ago. With no new deliveries or space under construction, the market’s retail inventory remained unchanged at 37.0 million square feet (msf).
Net absorption totaled 56,900 square feet (sf) in the third quarter, up from 11,500 sf in the second quarter. Year-to-date net absorption reached 211,700 sf, already surpassing the full-year total for every year since 2018.
San Jose/Campbell/Los Gatos led the market with 133,300 sf of positive absorption, lowering vacancy to 3.6% from 4.4%. Santa Clara recorded the region’s lowest vacancy at 3.2%, with 25,900 sf absorbed, while Morgan Hill/Gilroy posted 27,300 sf of absorption, lowering vacancy to 7.4%. Milpitas/ North San Jose remained essentially flat, with 1,500 sf of positive absorption and 7.1% vacancy.
Conversely, Sunnyvale/Cupertino recorded 72,800 sf of negative absorption, pushing vacancy to 3.6% from 2.0%. Palo Alto/Mountain View/Los Altos posted 58,400 sf of negative absorption, with vacancy rising to a regional-high 7.7%.
The largest retail investment sale in the third quarter was Main Street Cupertino, a 127,000-sf center within a mixed-use development, which was acquired by The Roxborough Group for $130 million.
Pricing: Average Rental Rate Increases
The average asking rent rose 2.0% quarter-over-quarter to $31.86 per square foot (psf) on an annual triple-net basis. Asking rents ranged from $22.63 psf in Morgan Hill/Gilroy to $47.63 psf in Santa Clara.
