South Bay tech companies expand office space, prepare for remote employees to return

Demand for Silicon Valley office space soared over the past three months, spurred by major technology companies in the South Bay expanding their real estate footprints.

Colliers, a commercial real estate firm with offices in downtown San Jose, released its 2021 Q2 market report Thursday, finding that office leasing activity reached 2.8 million square feet over this past April through June, levels not seen since the spring of 2018.

The report focused on Silicon Valley's South Bay offices in San Jose, Mountain View, Sunnyvale, Santa Clara, Fremont, Milpitas, and Morgan Hill.

The report found that "Silicon Valley's commercial real estate market rebounded in Q2 2021 with 6.2 million square feet of gross absorption, up 146.9% compared to Q2 2020."

Lena Tutko, research director at Colliers and the author of the report, noted that this region is at a "turning point" in the office market.

"Before the pandemic, there wasn't enough supply of office in the market, and tenants would lease properties that were under construction or sometimes not even started construction," Tutko said. "Now that those properties are online and built, now we're finally realizing those gains in the second quarter."

She said companies like Amazon, Apple, Google, and Silicon Valley's software and social media giants profited as more people went online to get their jobs and their shopping done. Now, these companies recently closed deals to lease more space, pre-lease new offices, and buy and build new offices. 

The expanded office footprint comes as more workplaces aim to reformat their layouts to offer more space between their employees.

"To accommodate more people and to accommodate their desire for more space and not be shoulder to shoulder, there's going to be a need for more space for these companies," Tutko said.

Ten percent of the South Bay's tech offices are vacant, and that vacancy rate rose slightly since the beginning of the year, the Colliers report found. The cost to lease office space has also increased, despite having more real estate availability.

Like most tech workers, Daryl Spitzer, a software engineer at Roku, has been working from home for nearly a year and a half. On Thursday, he said the company announced a hybrid schedule, bringing employees to work in their new San Jose offices at a minimum of three days a week, with the option to work from home twice a week.

"If they go back to having like great snacks and catered lunches, I'll be going in for the lunches," Spitzer said. "But when I want to be productive and get work done without interruption, I'll probably be working from home because I have a good setup there."

Tutko expects in-office work, whether full-time or hybrid, will peak around the end of the year.

"While Zoom calls are great," Tutko said, "you can't replace human to human interaction." while Zoom calls are great you can't replace human to human interaction."