San Jose October 2026 Report

Industrial, Multi-Family, Office, and Retail — one market, four property types, and a common thread: AI- and semiconductor-driven demand running into a very thin supply pipeline.

Overview

San Jose enters the fourth quarter of 2026 with strong demand across every property type. Office absorbed 3.3 million SF over the past year on semiconductor, AI, and cybersecurity leasing, with leasing volume at its highest since 2022, and apartments are among the tightest in the country at 3.1% vacancy with 8.3% rent growth. Industrial vacancy sits at a roughly ten-year high of 8.7% because inventory growth (2.7 million SF delivered) has outpaced demand, even though absorption still reached 953,000 SF. Retail remains very healthy at 4.1% vacancy, though rent growth has cooled to 0.5%. In every sector the new-construction pipeline is either small, mostly preleased, or both.

Industrial: vacancy has risen with new supply, but the market is split — specialized industrial (4.4%) and logistics (7.6%) are comparatively tight, while flex has softened to 11.9%.

Multi-Family: zero units were delivered over the past 12 months against roughly 2,800 absorbed, keeping vacancy near multi-decade lows and pushing effective rents up 10.2%. A pipeline of 5,103 units is now under construction, however.

Office: the recovery is real but uneven. Premium, amenitized space (4 & 5 Star) commands $68/SF, while Downtown San Jose and parts of North San Jose still struggle with older inventory.

Retail: occupancy remains among the strongest in the country, led by experiential, fitness, and food-and-beverage tenants, with malls at just 1.2% vacancy.

Industrial

Leasing

Leasing remained active, though demand has not been enough to fully absorb the expanding inventory. Vacancy rose to 8.7% — up 75 basis points year over year and the highest level in roughly a decade — while the market recorded about 960,000 SF of net absorption over the past 12 months across logistics, manufacturing, and technology users. Performance varies sharply by building: three newly delivered buildings at Edenvale Industrial Park in South San Jose remain 0% leased, while power-rich, specialized facilities continue to draw strong interest. One market participant noted that “power needs have increased,” with some tenants seeking more electrical capacity than existing infrastructure can provide.

Rent

Asking rents reached $26.58/SF, up 3.0% annually, as landlords compete more aggressively amid a growing inventory base. Specialized industrial averages about $23/SF with the lowest vacancy (4.4%), logistics about $19.40/SF, and flex $33/SF despite carrying the most vacancy. NVIDIA’s 302,843-SF lease at 5853 Rue Ferrari achieved $21.00/SF NNN and Archer Aviation’s Morgan Hill expansion $17.40/SF NNN, while technology users paid flex premiums of $39.00/SF in Santa Clara and $51.00/SF NNN for R&D space in Mountain View.

Construction

About 3.1 million SF is under construction (1.6% of inventory), with more than 80% preleased. Sunnyvale leads with roughly 1.2 million SF — including Intuitive Surgical’s 847,000-SF campus at 950 Kifer Road — followed by Milpitas (nearly 700,000 SF) and San Jose-Berryessa (about 650,000 SF). Data centers are a significant share of the pipeline, including a 397,205-SF Microsoft facility in Alviso and a 350,000-SF STACK Infrastructure project. Power availability and transmission constraints are now a primary consideration for both developers and occupiers.

Multi-Family

Vacancy

The vacancy rate of 3.1% is among the lowest in decades and well below historical norms and the national average. Net absorption totaled roughly 2,800 units over the past 12 months against zero deliveries, and the rate has compressed from the mid-5% range in early 2025. Hiring in artificial intelligence and other technology fields, renewed household formation, and in-migration of high-income workers are driving demand, even as some legacy technology firms continue to lay off staff. Sunnyvale and Mountain View/Los Altos show the lowest vacancy and strongest absorption, while Santa Clara and North San Jose benefit from concentrations of newer inventory.

Rent

Asking rents reached $3,467/unit, up 8.3% year over year, while effective rents rose 10.2% as concessions receded — a narrowing spread that signals stronger landlord pricing power. Market participants described rent growth as the strongest they have seen in several years. The 4 & 5 Star segment led at 9.7%, with newly delivered Santa Clara communities posting asking rents above $4,200 and $4,400 per month; 3 Star properties grew 9.1% as renters traded down, while 1 & 2 Star assets grew 3.7%. Mountain View/Los Altos and Palo Alto command the highest rents; East San Jose remains the more affordable option.

Construction

About 5,100 units are under construction (3.1% of inventory), up from just a few hundred units in mid-2025 as several projects broke ground in 2026. North San Jose holds the largest share, led by the 1,140-unit Coyote Creek Village, with further concentrations in West Valley San Jose, Sunnyvale, and Downtown San Jose. The pipeline is overwhelmingly 4 & 5 Star (about 3,900 units, against roughly 1,200 in 3 Star and none in 1 & 2 Star). Developers are also pursuing office-to-residential conversions, such as the 109-unit Bank of Italy Tower in Downtown San Jose.

Office

Leasing

Leasing accelerated, with 3.3 million SF of net absorption over the past 12 months and vacancy down to 14.5% (a 1.8-point decline year over year). Leasing volume is at its highest since 2022, supported by technology, semiconductor, AI, cybersecurity, and automotive-technology users. Sunnyvale/Cupertino continues to outperform on commitments from Databricks, Pinterest, and Apple; Moffett Park benefits from Google’s expansion; and Central Santa Clara has produced steady semiconductor leasing. Downtown San Jose and parts of North San Jose remain challenged by older inventory and weaker tenant preference. Several of the largest deals are renewals (marked below).

Rent

Asking rents average about $60/SF, up 2.8% annually, continuing a recovery from the 2020–2023 declines. Palo Alto remains the highest-priced cluster at nearly $80/SF, with Mountain View/Los Altos and Sunnyvale/Cupertino in the $60s; North San Jose and Milpitas generally price below $50/SF. A flight to quality drives performance: 4 & 5 Star buildings average about $68/SF and grew 3.6% annually, while 3 Star space is in the mid-$50s and 1 & 2 Star in the mid-$40s. Illumio’s 119,780-SF lease at 3315 Scott Boulevard was signed at $55.80/SF NNN and Infineon’s 220,872-SF commitment in North San Jose at $47.40/SF. Concessions remain significant, including 12 months of free rent and $72.50/SF improvement allowances on some Palo Alto Networks renewals.

Construction

The pipeline totals 1.1 million SF, only 0.7% of inventory and one of the smallest in recent years, and nearly all of it is preleased or owner-occupied. Moffett Park accounts for the bulk of the space underway, anchored by Google’s 505,000-SF project at 200 Caribbean Drive and a 315,000-SF building at 399 West Java Drive. Mountain View has roughly 260,000 SF underway at 465 Fairchild Drive (delivering 2027). Speculative projects remain largely on hold, and deliveries are expected to stay muted through the rest of 2026.

Retail

Leasing

Leasing conditions kept improving as demand broadened beyond traditional retailers. The market recorded about 400,000 SF of net absorption over the past 12 months, with vacancy at 4.1% — well below historical peaks and national averages — and availability near 4.7%. Malls are especially strong at 1.2% vacancy. Experiential and destination-oriented uses are gaining share: Picklr took 43,485 SF at McCarthy Ranch in Milpitas, Ace Pickleball 31,057 SF at Monterey Plaza, Morgan Hill Bowl renewed and expanded to 35,678 SF, and Altitude Trampoline Park leased 20,000 SF at Great Mall. Smaller spaces lease quickly, while larger boxes often need repositioning or adaptive reuse.

Rent

Asking rents average about $41/SF, up 0.5% annually — positive, but the slowest pace of the four property types. Growth is increasingly tied to location quality: Palo Alto, Cupertino, and West San Jose generally exceed $50/SF, Downtown San Jose has posted some of the fastest recent gains as foot traffic improves, and Gilroy and San Benito County sit in the high-teens to low-$20s. By subtype, malls average about $52/SF, neighborhood centers $42, strip centers $39, general retail $39, and power centers $36. Recent deals range from $54.00/SF for 8,123 SF on El Camino Real in Sunnyvale to $27.00/SF for 25,800 SF at Pacheco Pass in Gilroy.

Construction

Construction remains highly constrained: CoStar’s pipeline commentary describes no retail space under construction (the key-indicator table shows a single 83,635-SF neighborhood-center project). Developers are focused on redevelopment, adaptive reuse, and preleased or owner-occupied projects, such as Tesla’s 50,000-SF build-to-suit facility in East San Jose-Willow Glen and a 43,130-SF Whole Foods Market in Los Gatos/Saratoga. Retailers are increasingly expanding into existing space, for example Vallarta Supermarkets’ planned occupancy of a former Toys “R” Us at The Plant.

Economy

San Jose’s economy carries mixed signals. Elevated interest rates and tech-sector layoffs have slowed employment growth, but the metro still added jobs: total employment is 1.18 million, up 1.3% year over year, with information-sector losses offset by gains in education, healthcare, and government. Unemployment is 4.1%, slightly below the national 4.3%.

Median household income rose 5.2% year over year to about $185,000 (CoStar’s text cites $180,000), far above the U.S. median of roughly $85,000, which supports premium rents and retail spending while worsening affordability for lower-income households. Population is just under 2 million and roughly flat (-0.1%).

The tech sector is sending divergent signals: legacy firms such as Intel continue to cut jobs, while AI-driven companies are expanding — Nvidia has filed plans for a nearly 700,000-SF headquarters expansion, and Apple invested more than $1.1 billion in Silicon Valley office acquisitions in 2025. PG&E’s investment in power capacity to support data centers signals confidence in the region’s trajectory. Risks include immigration-policy shifts, persistent housing shortages, and further workforce reductions as automation and AI adoption accelerate.