San Francisco workplace buildings are filled with vacancies

Steven MacDonald has felt more like unloading fax machines or Friendster merchandise than prime office space in San Francisco for about six months.

MacDonald has been in real estate law for 30 years, most of the time having had offices in the Flood Building, which used to be a prime location. It’s just a few blocks from Union Square and the financial district, and right next to a Bay Area Rapid Transit subway station.

He had two small offices in the sublet market since August when it became clear that his company would join the post-pandemic hybrid revolution – some days in the office, some at home.

The problem is, every other lawyer, therapist, or insurance agent in San Francisco seems to have the same idea.

“I’m not getting anything,” said MacDonald, 72. “And I was just talking to my administrator and she just told me they dropped the ad.” There were no nibbles. “

About 18% of San Francisco’s office space is currently in the market, about 14 million square feet of empty space. Large companies synonymous with the city, from Twitter and Salesforce to Levi’s and The Gap, have announced plans to downsize as they envision a future where remote work prevails.

“It has been an undoubtedly difficult 12 months,” said Robert Sammons, senior director, Bay Area Research, Cushman & Wakefield, a commercial real estate company.

While demand for lower-priced property has declined significantly, other parts of the market are showing some signs of life.

The Salesforce Tower, the tallest building in the city and a shining monument to how much property Big Tech has devoured in San Francisco over the past decade, remains in great demand.

“If you’re a world class renter and you want to be the best product in San Francisco, you should turn to Salesforce Tower,” said Sammons.

The appetite for so-called “trophy” buildings is holding up quite well. Nothing says “our SPAC killed its IPO” like a panorama of San Francisco Bay on the 61st floor.

It is the smaller buildings with no gondola traffic that are the bigger concern.

This could be an opportunity for the next Salesforce, which right now could just be two programmers working in their proverbial garage … or zooming out of two different garages.

“There are smaller technology companies, there are smaller professional service companies. Now is kind of the sweet spot for a lot of them, “said Sammons.

So far, however, startups have done more window shopping than actual leasing. Another industry is far more aggressive when it comes to creating space. They’re still tech, just no hoodies and jeans tech.

“If you walked through the lab, you’d see a typical diagnostic lab, and yes, there are lab coats,” said Ken Knight, chief operating officer at Invitae, a biotech company that does genetic testing.

Invitae signed a contract for a second location in San Francisco earlier this year. The terms of the contract are not public.

“We wouldn’t have signed the lease if we weren’t comfortable with the opportunity,” said Knight. “So yeah, we feel good about the deal.”

Biotech companies like Invitae can’t be completely removed, and that has been a real estate lifeline in San Francisco. Three months ago, pharmaceutical company Vir Biotechnologies took over a huge portion of Dropbox’s headquarters. Not long after that, the property sold for over $ 1 billion, a record price per square foot for office space in San Francisco.

Not every commercial property in San Francisco can accommodate what biotechnology often needs: laboratory space, floors that can carry heavy machinery, state-of-the-art ventilation systems.

However, news of the deal was still a positive sign for Carmen Chu, the city manager of San Francisco. Not only did this mean more property taxes, the city’s largest source of income, but it also sent a strong signal that investors don’t believe the city will dwarf itself.

“We have about 900,000 residents, but on weekdays we swell to over a million people who come to work,” Chu said. “All of these people, they shop in our centers, they eat in our local cafes.”

And they pay sales tax, another important source of income.

Chu can count on Steven MacDonald to bring in his fair share of the city coffers – he’s not going anywhere. Nibbles or no nibbles, he made this place his own.

Just before the pandemic, MacDonald was putting the finishing touches to the lounge of his 18th century office. Leather sofas, a tapestry from the Habsburg Empire on one wall, an oil painting of a French aristocrat on the other.

“This is a room that I’ve pimped up to use slang,” MacDonald said.

MacDonald knows that other law firms in San Francisco are completely remote. But he believes he will have a competitive advantage if he stays on the pitch. The lounge is a good place to have a drink with your opponents.