Office Real Estate in San Jose, CA

Cap rates for office properties in San Jose vary by submarket, property class, and occupancy levels. The overall San Jose market average cap rate is approximately 5.0%. Class A properties typically trade at lower cap rates than value-add opportunities.

Office is not dead, but it is undergoing a structural transformation. Trophy and Class A buildings in prime locations with modern amenities continue to see healthy demand as companies invest in quality space to attract talent. However, older Class B and C office buildings face significant challenges from remote work adoption. The sector presents opportunities for contrarian investors willing to acquire quality assets at distressed pricing or pursue creative repositioning and conversion strategies.

Flight to quality refers to the trend of office tenants migrating from older, lower-quality buildings to newer, amenity-rich Class A and trophy properties. Companies are using premium office space as a tool to attract employees back to the workplace, prioritizing buildings with sustainability certifications, modern design, on-site amenities, and convenient locations. This trend has widened the performance gap between top-tier and commodity office space.

The AI boom has been a significant demand driver, particularly for NVIDIA and its ecosystem of AI startups that are leasing office and R&D space. Data center demand has surged as hyperscalers and AI companies seek computing infrastructure. However, AI has also accelerated remote work capabilities, creating a complex demand picture where net new office absorption remains uncertain despite the sector's explosive growth.

Tech layoffs and footprint reductions have pushed office vacancy rates to multi-decade highs in some Silicon Valley submarkets. However, the market's long-term trajectory is tied to innovation cycles rather than short-term employment fluctuations. Well-located, modern campuses continue to attract tenants, while older, less amenitized properties face the highest vacancy risk and may require significant capital investment or repositioning.