San Jose’s industrial scene is doing a slightly awkward two-step in early 2026: leasing is picking up, even as more empty space hits the market. Tenants are hunting for newer, power-capable logistics and specialized industrial buildings and largely passing over older flex and commodity space. That tug-of-war between stronger demand and heavy new supply is deciding which properties lease first and which landlords have to sharpen their pencils on rent.
Vacancy and construction
The vacancy rate in San Jose has climbed to roughly 8.4% as a fresh batch of industrial buildings has come online, with about 3.5 million square feet under construction at the start of 2026. A Q1 2026 market report from Matthews notes that roughly 689,000 square feet were delivered recently and that asking rents have softened, leaving landlords to compete harder for tenants.
Tenants target modern, power-intensive properties
CoStar Analytics reports that tenants are reentering the market, targeting modern logistics and power‑intensive properties while remaining cautious on older flex and commodity space, a pattern that favors new speculative projects and upgraded buildings with higher electrical capacity. That selectivity helps explain why submarkets with strong power infrastructure and good transport access are leasing ahead of older industrial parks.
Big leases show where demand is landing
Recent deal activity backs up that story on the ground. CBRE reports that PODS Enterprises signed a roughly 104,400-square-foot lease at 1959 Monterey Road, spotlighting tenant appetite for freestanding, well-located facilities with efficient loading and modern clear heights. It is the kind of transaction that will soak up the best space more quickly than older, commodity-style products.
Specialized users keep the market buoyant
Local market analysis points to AI hardware, semiconductors, robotics and clean energy manufacturing as steady demand drivers for power-capable industrial buildings, according to Kidder Mathews. On the national stage, the Industrial Business Indicator from Prologis found that data-center suppliers accounted for about 10% of new leasing in Q1 2026, hinting at a broader structural tilt toward specialized, energy-intensive uses.
What landlords and tenants should watch…