A computer networking company is delivering some bittersweet news to Silicon Valley's office market with a move to fill a long-vacant property but shrink its corporate headquarters footprint in the process.
Netgear, a longstanding fixture in the tech-concentrated region, is preparing to relocate its global hub after signing a full-building lease at 3553 N. First St. in San Jose, California. The shift to the 89,400-square-foot property will downsize the company's headquarters space by roughly 40%, echoing moves other office tenants have made across the country as they further settle into post-pandemic normalcy.
The company has been leasing the entirety of the 142,700-square-foot building nearby at 350 E. Plumeria Drive. Netgear's lease there expires later next year, according to CoStar data, at which point it will officially shift over to its new space.
Newmark had been marketing the North First Street property for the past several years on behalf of landlord Alvarez & Marsal Holdings. The New York firm purchased the Silicon Valley property for $24.5 million in 2022 from the Santa Clara County Housing Authority.
The nonprofit housing agency paid $37.35 million for the building in 2020 to house its own headquarters. However, those plans fizzled and ultimately resulted in the discounted sale.
Since its acquisition, Alvarez & Marsal has invested in a series of upgrades and renovations to help reposition the 1980s-era building. Those improvements have so far included new indoor and outdoor lounge areas, open-air conferencing, a fitness center, a zen garden and fire pits, and other amenities catering to a tenant pool that has increasingly prioritized the newest and nicest office spaces as they try to lure employees back to the workplace.
Smaller moves
While the days of major office offloadings and sublease listings are largely in the rearview mirror, companies such as Netgear are still adjusting their real estate portfolios to be more efficient in the wake of the pandemic.
Those adjustments have often resulted in downsized spaces, a shift that has challenged the national office market's recovery and has made it increasingly difficult to backfill space tenants have already left behind.
The combination of depressed demand, stagnant leasing and ongoing flexible work has helped push the national office vacancy rate to a record high of about 14%, according to CoStar data. Tenants collectively handed back upward of 65 million square feet last year, boosting the total to more than 210 million square feet of move-outs since the start of 2020.
What's more, the leases that are being signed these days have shrunk considerably, averaging about 20% smaller than their pre-pandemic averages.
In Silicon Valley — where tech companies contribute nearly two-thirds of the region's leasing volume — the office vacancy rate has soared past 16%, the highest in 20 years.
While leasing has rebounded slightly after hitting a post-pandemic trough last year, the regional availability rate is stuck at about 25%, according to CoStar data, and rents have fallen from their pre-pandemic highs of more than $80 per square foot to the current average of roughly $68 per square foot.
Yet some signs underscore a growing sense of optimism in the Silicon Valley area after tech companies completed a series of blockbuster deals in recent months to considerably expand their stake in the region.
Over the past several weeks, cloud-based data storage company Snowflake agreed to sublease from fellow tech giant Meta a three-building office campus in Menlo Park, a deal that totals roughly 773,000 square feet. Amazon partnered with WeWork to fill 217,000 square feet at 401 San Antonio Road in Mountain View. And Nvidia, the world's most valuable computer chip maker, is set to soon take over an entire property a short drive away from Netgear's future San Jose office at 300 Holger Way.