A ghost town.
So many are now referring to downtown and the financial districts of San Francisco, as the number of vacant retail and office buildings seems to be increasing by the day.
Typically, rental prices go down when supply goes up. But that hasn’t happened in the city yet.
The Salesforce East building has made the latest headlines after its former sole tenant is vacating the building. Salesforce is giving up 104,000 square feet of space, adding to an already record-breaking office space availability in San Francisco.
“The vacancy rate in San Francisco is about 30%, or about 35 million square feet that is currently unused,” said Colin Yasukochi of commercial real estate firm CBRE. “And that’s the tallest we’ve ever seen in San Francisco.”
Yasukochi, who serves as executive director of CBRE’s Tech Insight Center, said office vacancy rates in major cities across the country are all being impacted by the shift to remote work.
But San Francisco will be hit harder because it has a high concentration of software companies that can easily let their employees work remotely.
Alexander Quinn, research director at Jones Lang LaSalle Commercial Real Estate, said the city was almost hit because it had been a commuter hub.
“Those who are less comfortable transiting, which has definitely been the case during the pandemic,” Quinn said. “They came back to the office the slowest.”
While some rental companies have lowered rates slightly, most in the newer, taller towers haven’t. In fact, some buildings with the best views are increasing their rental rates due to high demand from businesses who are picky about where they will house their remaining office space.
“They want to be at the top of these tall buildings, and they want to be in the buildings along the waterfront with nice views because they’re trying to get their employees to come back to the office,” Yasukochi said.
Landlords in shorter or slightly older properties aren’t slashing prices either, instead offering months of free rent or money to customize their office space for new tenants. This is because many properties still have construction debts that have yet to be paid off.
“You can’t materially back down on rent without risking defaulting on your building,” Quinn said.
According to Quinn, falling rents could also hurt the value of the city’s buildings and office space in general. With the continuation of work from home and a downtown in the tech industry at large. Quinn said there is a real possibility that some commercial buildings in the city could default.
Tech layoffs are having a domino effect. San Francisco is struggling to fill millions of square feet of empty office space. Business and Tech reporter Scott Budman has some insight.
