San Jose Industrial Leasing Doubles — Yet Vacancy Hits a New High

San Jose’s industrial leasing activity outperformed the market average in 2025, particularly in Q3, driven by several large logistics and selective flex leases.

Total annual leasing reached 4.8 million square feet, up sharply from 3.1 million square feet in 2024. Q3 alone recorded about 1.7 million square feet, nearly double last year’s level, confirming that the rebound was not a one-off but part of a broader demand recovery (CoStar).

However, higher leasing volume has not reduced vacancy. Instead, logistics vacancy rose to 7.0%, the highest level in more than a decade.

Why the disconnect in San Jose industrial leasing?

The core issue is uneven demand by property type.

 Demand has recovered mainly in manufacturing, warehouse, and logistics space, while flex properties tied to tech and R&D remain weak. Ongoing tech layoffs and cost controls continue to suppress expansion demand for R&D-oriented space, leaving a large portion of prior supply unabsorbed.

Recent leases illustrate this split:

•  Manufacturing and logistics users continue to take large-format space.

•  Flex leasing still occurs, but only in isolated, well-capitalized cases rather than broadly across the market.

At the macro level, tariff uncertainty, a U.S. unemployment rate above 4%, and cautious corporate decision-making reinforce selective, rather than broad-based, expansion.

 San Jose’s industrial market is recovering, but the recovery is slow and concentrated. Leasing activity is likely to remain slightly above average into the first half of 2026, while vacancy stays elevated until flex demand meaningfully improves.