Industrial Real Estate in San Jose, CA

Cap rates for industrial properties in San Jose vary by submarket, property class, and occupancy levels. The overall San Jose market average cap rate is approximately 5.0%. Class A properties typically trade at lower cap rates than value-add opportunities.

Industrial has benefited from structural demand drivers including e-commerce growth (which requires 3x more logistics space than brick-and-mortar retail), supply chain reshoring and nearshoring trends, inventory stockpiling following pandemic-era disruptions, and limited developable land in infill locations. These factors have driven vacancy rates below 4% nationally and pushed rent growth well above historical averages in most markets.

Bulk warehouses are large-scale distribution centers (typically 200,000+ SF) located along major transportation corridors, used for regional storage and distribution. Last-mile facilities are smaller (20,000-150,000 SF), located closer to dense population centers, and serve the final leg of delivery to end consumers. Last-mile properties typically command higher rents per square foot due to land scarcity and proximity to customers but offer lower overall NOI given their smaller footprint.

The AI boom has been a significant demand driver, particularly for NVIDIA and its ecosystem of AI startups that are leasing office and R&D space. Data center demand has surged as hyperscalers and AI companies seek computing infrastructure. However, AI has also accelerated remote work capabilities, creating a complex demand picture where net new office absorption remains uncertain despite the sector's explosive growth.

Tech layoffs and footprint reductions have pushed office vacancy rates to multi-decade highs in some Silicon Valley submarkets. However, the market's long-term trajectory is tied to innovation cycles rather than short-term employment fluctuations. Well-located, modern campuses continue to attract tenants, while older, less amenitized properties face the highest vacancy risk and may require significant capital investment or repositioning.