Technology companies have expanded rapidly in the past few years due to an increase in a remote and hybrid workforce. A combination of rising interest rates, falling valuations, and fears of a slowing economy have caused many companies, especially tech companies, to scale back growth plans through layoffs. With a high concentration of tech companies, these layoffs have shaken Silicon Valley hard. Meta laid off 2,200 people during Q4 2022 within San Mateo, Santa Clara, and Alameda counties. Other regional layoffs include those of Cisco (593 employees) and Amazon (263 employees).
For the companies surviving these economic headwinds, the office market remains a tenant-favorable market. Averaging asking rates dropped 3.3 percent quarter-over-quarter going from $4.20 FS to $4.06 FS. Kastle Systems, which tracks office key card activity, indicates that the San Jose Metro area sits at 36.6 percent physical occupancy. Given all these conditions, tenant space demand is expected to continue to soften in 2023.