Tracking the supply of commercial space, vacancy rates and asking rents (i.e., the rent listed for new space) provides leading indicators of regional economic activity. In addition to office space, commercial space includes R&D, industrial, and warehouse space. A negative change in the supply of commercial space suggests strengthening economic activity, and tightening in the commercial real estate market. The change in supply of commercial space is expressed as the combination of new construction and the net absorption rate, which reflects the amount of space becoming available. The vacancy rate measures the amount of space that is not occupied. Increases in vacancy, as well as declines in rents, reflect slowing demand relative to supply.
Commercial space became slightly more available in 2012 than in 2011 in Santa Clara County, though supply of commercial space continued to decrease overall. Net absorption for all commercial buildings remained strongly positive in 2012, though it fell seven percent from the prior year, suggesting continued demand for commercial leases at more modest levels. New office space construction helped to offset high absorption rates, slightly increasing supply. Vacancy rates continued to decline in 2012 in Santa Clara County overall, though at a slower rate than in 2011 (1.6 percent versus 2.3 percent, respectively). Vacancy in warehouse properties was the only category to increase, though it only rose by 1.1 percent. In contrast, San Mateo County's commercial vacancies increased, though by less than one percent for all commercial properties.
Annual asking rents for commercial space ticked up across the board in 2012 from the prior year in both Santa Clara and San Mateo Counties, led by increases in office space rental costs. For the counties combined, office space rents increased nine percent, R&D space increased four percent and Industrial/Warehouse space increased seven percent. In Santa Clara County, office buildings continue to drive construction activity in commercial buildings, increasing by 359,400 square feet this year after zero square footage added in any one sector last year. Since 2009, all new commercial space has been attributed to the office sector.