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SAN JOSE, CA-The Silicon Valley corporate real estate market will continue to see an increase in vacancies, and rents may slide to 1994 levels by the end of the year, according to a CRESA Partners’ report issued this week.

“Most of the activity in the market is coming from consolidation and lease restructuring negotiations, with virtually no expansion-oriented transactions in the mix,” says Scott Kinder, a CRESA Principal in the San Jose office. “Lease rates could fall to 10-year lows throughout the Valley by the end of the year.”

The vacancy and availability rate for office space and R&D space in the Silicon Valley region is about 23%, according to the report, but jumps to 33% when unoccupied office space that’s leased but not on the market is figured into the equation. All told, there is more than 40 million sf of vacant space in the greater Silicon Valley, which has pushed the average asking triple-net rent for flex-tech space to $13.75 per sf per year.

Kinder tells GlobeSt.com he expects the price will come down further this year, to the $9-$10 range. The situation is good news for corporate tenants, of course, as they will continue to have leverage in real estate lease transactions as building owners and sublessors vigorously attempt to retain building occupancy or sublease excess space.

“Landlords have to compete with the sublease market and in many cases are offering their space fully furnished, together with other transaction incentives such as additional interior tenant improvements and other monetary concessions such as free rent,” says Kinder. “There’s so much square footage available that I don’t think vacancy rates and absorption rates really matter at this point; there’s virtually no expansion-driven demand.”

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