Uncertainty around the future of office space in Silicon Valley created a cloudy outlook in Q3. We began to see the first indications since the COVID-19 pandemic hit of lowered asking rates, increased vacancies, and downward swings of net absorption. Following Q2, the downward trend of rental rates coupled with increased sublease availability began to impact select submarkets such as Sunnyvale and Mountain View. Asking Rental Rates do not fully represent the severity of the market impact from COVID-19 as many landlords have yet to adjust rental rates due to a minimal number of transactions occurring post-covid, and a lack of lease comparables to establish new, lower rental rates. Along with the need to downsize due to new business realities or an increase in remote work, tenants may be faced with increased expenses, should California Proposition 15 pass in the November election. Prop 15 will effectively increase operating expenses for most tenants
through an increase in real estate property taxes tied to reassessment of commercial properties throughout the state.
through an increase in real estate property taxes tied to reassessment of commercial properties throughout the state.