South Bay enjoys best three months of office leasing in post-COVID era

SAN JOSE - The office market in the South Bay has muscled up for its best three months of post-COVID era leasing deals, a resurgence powered by a tech industry that has begun to hunger for workspaces again, a new report shows.

“The Silicon Valley office market sustained its recovery trajectory entering 2026, with momentum continuing to build across key demand sectors,” Newmark, a commercial real estate firm, stated in a report for the January-through-March first quarter.

Tenants filled up 3.1 million square feet of office space in the first quarter of 2026, according to a survey by Newmark. Newmark was measuring what it calls gross absorption.

To put that volume of office leasing activity in perspective, 3.1 million square feet is roughly the combined size of the Westfield Valley Fair and the Westfield Oakridge malls in San Jose.

“The market is definitely active,” said Phil Mahoney, a Newmark executive vice chairman. “The return to office is taking hold more and more.”

Artificial intelligence companies have propelled much of the leasing activity.

“Silicon Valley and San Francisco are fortunate to have as many of the AI companies as they do,” Mahoney said.

The South Bay leasing surge is strong enough to fully fill with tenants the One Santana West office building next to the Santana Row neighborhood in West San Jose and two office buildings at Cityline in downtown Sunnyvale.

Other tech company deals, such as the OpenAI rental of a huge campus in Mountain View, the lease and sublease deals of Santa Clara office spaces by Everpure, and a lease by Infineon Technologies of a big office site in San Jose, have also fueled a stronger South Bay office market.

“The elevated transaction volume was driven by large tenant requirements that materialized following improved economic conditions,” Newmark stated in its report on first-quarter activity.

The 3.1 million square feet of overall leasing activity was the largest in a three-month stretch since the July-through-September third quarter of 2019, according to information provided by Newmark.

Office leasing during the 2019 third quarter filled up 4.5 million square feet, Newmark reported.

In the year-ago first quarter of 2025, gross absorption activity filled up 1.1 million square feet of office space, according to Newmark’s research.

Office vacancy levels in the South Bay finished the third quarter at 15.7%, Newmark reported. That represented a huge improvement from the roughly 20% office vacancy rate in the region during the April-June second quarter of 2024.

Newmark is also encouraged by another crucial benchmark known as net absorption. In a positive sign, tenants filled up a net total of 1.1 million square feet more than they vacated during the first quarter.

Despite the improvement, global events are poised to influence business activity, including decisions about whether to take new office spaces, experts believe.

“Geopolitical issues are still very much at play,” Mahoney said. “The sooner the Iran war is over and energy prices are under control, the better it will be for the market. Silicon Valley is not immune to the war, but we are seeing good activity.”

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This story was originally published May 1, 2026 at 5:16 AM.