SAN JOSE — Commercial leasing activity jumped in Silicon Valley during the third quarter of 2025, and development activity rose at a modest pace as owners of properties scout for an elusive market rebound, a new report shows.

Santa Clara County, San Mateo County, and Fremont commercial property leases totaled 20.4 million square feet during the July-through-September third quarter, according to a report from the Silicon Valley Institute for Regional Studies that was released in partnership with JLL, a commercial real estate firm. The institute is the research arm of regional think tank Joint Venture Silicon Valley.

“The market is turning in a positive way,” said David Sandlin, an executive vice president with commercial real estate firm Colliers. “Tenants are out right now looking for real deals. They want more space.”

The pace of commercial leasing in the third quarter was 48.9% higher than the 13.7 million square feet that was leased in the April-through-June second quarter, the report noted.

The survey defined commercial spaces as office, research, industrial, and laboratory buildings. Retail was excluded.

Completed commercial development projects in Silicon Valley totaled 5.61 million square feet in the third quarter in Silicon Valley. That was up 5.5% from the 5.32 million square feet in the second quarter, according to the report.

The report arrives on the heels of recent leases in downtown Sunnyvale by artificial intelligence company Databricks and cybersecurity company Crowdstrike that greatly bolstered the Silicon Valley market, filling up hundreds of thousands of square feet of space.

“The market is certainly more positive than it was two years ago,” said Phil Mahoney, an executive vice chairman with commercial real estate firm Newmark. “There was a lot of momentum going into the election last year that was lost in the first quarter. But that momentum is now coming back.”

A new office building in the Santana Row neighborhood of West San Jose has also turned into a success story by attracting a steady stream of leasing deals.

Even though leasing activity has risen, the vacancy rates for commercial buildings climbed higher throughout Silicon Valley in a weak indicator for the market, according to the report.

“While the region’s office vacancy rate fell slightly from a record high of 23% in the second quarter to 22.2% in the third quarter, it remained more than double its 2019 average and above peak levels of the dot-com bust,” the report stated.

Laboratory spaces, once deemed a darling of the commercial property sector in the post-COVID-19 era, reached a vacancy rate of 37%. While there has been a boom in development, demand hasn’t sufficed to fill them.

Rents for commercial spaces are also showing signs of weakness, according to the report.

“Inflation-adjusted asking rents continued to decline through Q3 2025, falling 7% from 2024 levels to their lowest average rate in a decade,” the report stated.

In the wake of the COVID-19 outbreak, the uneven return to the office throughout the Bay Area has helped to keep office vacancies relatively high and rents in a sluggish state.

“No new office space was completed in Silicon Valley in the third quarter of 2025,” the report stated. “However, 1.74 million square feet of office space have been completed since the beginning of 2025, already surpassing 2024 annual totals.”

Tenants filled commercial property spaces at a slightly greater amount than the sites they vacated, the report determined. These dynamics produced positive net absorption of commercial space in Silicon Valley, according to the report.

“This suggests a modest increase in tenant demand,” the report stated.

Colliers and other big real estate companies closely track how much combined square footage big tenants are seeking to lease at any one time. That metric is now showing a hefty jump, Sandlin said.

“In the depths of COVID, our large active user list was 2 million square feet,” Sandlin said. “It is now over 11 million square feet.”

That’s the equivalent of 10 or more office towers in the South Bay.

Tech companies have decided to push ahead with expansion despite uncertainty from both sides of the political aisle in Washington, D.C., observers said.

“Companies are looking at uncertainty as being normalized,” Mahoney said. “They are in a ‘damn the torpedoes’ mentality.”

A tangible blossoming of artificial intelligence companies in Silicon Valley has fueled a need for expansion in the region, according to experts.

“AI is driving a lot of what’s happening in Silicon Valley and San Francisco,” Mahoney said. “Many other markets nationally are not seeing the same resurgence of activity.”

Along with the expanding upstarts, Silicon Valley’s bellwethers appear to be on solid and strengthening ground.

“Nvidia, Google, Meta, Microsoft, and Apple are all doing well, and that is great for the overall environment,” Mahoney said. “You have the major companies, and you have the rising up of AI-funded growth companies. These have certainly helped to absorb a lot of the better space.”

The improvement is likely to persist, Sandlin asserted.

“Next year will be a very strong year for Silicon Valley,” Sandlin said. “A lot of the quality office buildings will get leased.”