South Bay leasing rebound

The South Bay office market just did something it had not managed in years. In the first quarter of 2026, Silicon Valley recorded 3.2 million square feet of office leasing, the strongest quarter since the pandemic began and roughly 1.7 million square feet more than the prior quarter. The jump was not broad-based. It came from a burst of large tech deals, with tech tenants taking all 10 of the quarter’s biggest leases. Santa Clara and Sunnyvale captured seven of those transactions, which tells you where demand is actually landing. (savills.us) That matters because the South Bay has spent years looking like a market with too much space and not enough urgency. The new quarter did not erase that overhang. Savills says availability is still elevated even after the leasing spike. But the shape of the market has changed. Companies are no longer shopping everywhere. They are clustering around the best buildings in the strongest submarkets, which is how a market can feel loose in the aggregate and suddenly tight if you want the small set of offices that people actually want. (savills.us, cbre.com) The clearest example is OpenAI. In March, the company leased a five-building office complex in Mountain View totaling nearly 450,000 square feet, a major South Bay expansion that put one of the most aggressive AI tenants directly into the middle of Silicon Valley’s core office geography. The campus sits on Ellis Street in the East Whisman area, close to Google and Waymo, which is exactly the kind of location that benefits when companies decide proximity still matters. (mv-voice.com, therealdeal.com) OpenAI was not alone. Savills attributes the quarter’s surge to major tenants including OpenAI, Databricks, and Apple. That is the important distinction in this rebound. It is not a return of old office demand from every sector. It is a targeted wave from firms that are still hiring around AI, advanced computing, and platform infrastructure, and that are willing to pay for buildings that help them recruit. When the buyers are this concentrated, the recovery does not spread evenly. It piles into a few nodes and changes pricing there first. (savills.us) That is why brokers are warning that tenants who waited may have missed the easiest moment to negotiate. CBRE’s 2026 office outlook says demand for prime assets is spilling into the next tier as top-quality options thin out, and that the urgency to secure good space is widening the gap between desirable buildings and everything else. Newmark’s latest Silicon Valley data points the same way: active office-only tenant demand reached 6.0 million square feet, up 62.2% from the prior quarter, while year-to-date net absorption hit 2.4 million square feet, the strongest showing since 2018. (cbre.com, nmrk.com) The result is a market that still looks soft from far away and more competitive up close. Average asking rents in Silicon Valley were still basically flat to down slightly at the end of 2025, according to Newmark, which means landlords across the region are still adjusting. But that average hides the real story. The leverage is fading first in the buildings near the companies driving this rebound. In Mountain View, that now includes the five-building campus at 350-380 Ellis Street, where one AI lease became a signal flare for the rest of the South Bay. (nmrk.com, therealdeal.com)