South Bay Office Leasing Surges to Record Highs Post-COVID

URGENT UPDATE: The South Bay office market just achieved its best leasing activity since the COVID-19 outbreak, according to a new report from commercial real estate firm Savills. In a significant turnaround, full-year leasing volume for 2025 skyrocketed to 7 million square feet, marking a remarkable 26% increase compared to 2024.

The report highlights that while the surge in leasing activity is promising, a full recovery remains out of reach. The overall office space availability rate has improved, dropping to 24% in the fourth quarter of 2025, down from 26% in the same quarter last year. This marks the fourth consecutive quarter of declining availability, a hopeful sign for the struggling sector.

Despite these advancements, the report cautions that tenant demand is not fully aligned with the volume of available space. “Healthy interest from AI and advanced tech firms is evident, but overall demand has not kept pace with the influx of new office space,” Savills stated. This discrepancy keeps availability rates significantly higher than pre-pandemic levels.

In a positive trend for property owners, asking rents have reached an all-time high. The average asking rental rate climbed to $5.47 per square foot by the end of 2025, reflecting a 2.8% increase from the previous quarter and an 8.7% jump compared to the end of 2024. Class A office space rents averaged $5.52 per square foot, up 7% from the previous year.

However, landlords are making concessions to attract tenants, resulting in lower effective rents. “Landlords are offering larger tenant-improvement allowances and longer free-rent periods to stay competitive,” the report noted.

Looking ahead, Savills remains cautiously optimistic. “With tightening supply and steady demand, rent levels are expected to stabilize as we move into 2026,” the report suggests. The trend indicates that established tech giants like Apple and emerging companies such as Databricks and CoreWeave are actively leasing significant office spaces, particularly in Sunnyvale.

Additionally, there’s a promising development regarding sublease spaces, which are now being filled, signaling a potential balance in the market. “Sublease availability fell in 2025 and is anticipated to continue its decline in 2026 as companies realign their real estate needs,” Savills reported.

As the South Bay office market strives to adapt to evolving tenant requirements, its recovery trajectory remains a crucial point to watch. Stakeholders and prospective tenants are encouraged to stay informed as trends continue to unfold in this dynamic environment.