Newly released reports for the first quarter show that office market conditions in downtown San Francisco continue to deteriorate. According to CBRE, the office vacancy rate reached 29.5 percent in the first quarter of 2023, the highest level ever recorded. The number is significantly higher than vacancy rates reported during the dot-com bust in the early 2000s, and a sevenfold increase since the same period in early 2020. While the numbers are bleak on their own, real estate experts in the region are expecting a high one The vacancy rate will be even higher as the leases expire in the next few years. There is also a very real possibility that many building owners will return the keys to the lenders. “We’re going to have sales unmatched in commercial real estate history over the next 12 to 18 months,” said Mark Ritchie, broker at Ritchie Commercial.
The San Francisco office market has struggled more than others in recent years due to several factors, including the fact that the tenant base is heavily dominated by technology companies, many of which have relocated their headquarters or scaled down their office space to work remotely work continues to be popular with workers. The city has also struggled to get its homelessness under control, and although the overall crime rate is below pre-pandemic levels, a series of high-profile crimes made headlines. Just last week, a well-known member of the tech industry, founder of CashApp and former chief technology officer of Stripe, was stabbed to death near downtown. While San Francisco Mayor London Breed has proposed a change in zoning codes to facilitate the conversion of office buildings into life science space, it looks like many more initiatives will be needed to bring more office tenants back downtown bring.
