According to new data recently released by commercial real estate firm CBRE, San Francisco has 27.1 million square feet of office space citywide, a record high. If you need a visualization of that amazing number, there’s just over 20 office space available in the Salesforce Tower — and SF’s tallest building has 1.35 million square feet of office space across its 59 floors.
If leasing activity keeps up with its current trajectory, the coming quarters could deteriorate further as 50% of current subleases expire in 2025. “The vacancy rate will continue to rise over the next few quarters as demand remains subdued at this time and all of this is related to uncertainty surrounding the economy and corporate space requirements,” said Colin Yasukochi, Executive Director of Tech Insights at CBRE.
Mayor London Breed spoke about her concerns about the city’s high office vacancy rate in an interview with Bloomberg News last week. Technology companies’ remote working policies are part of the problem, Breed said. She pointed to Salesforce as an example. “[Marc is] very supportive of the city, continues to provide that support to schools and other great causes, but the building sits empty and that’s a real problem,” Breed said.
Empty buildings depress property values, affecting the city’s property tax revenue. Workers also use public transport at lower fares and spend less on goods at local businesses as they spend more time at home.
Breed plans to get companies in growth industries like biotech and green tech to fill empty office space.
In the meantime, asking rents for directly rented space have not changed significantly. Rental prices are down just 2.6% compared to the first quarter of the year, though they’re down 13% from an all-time high in 2019. Yasukochi said that he thinks this is the most interesting finding from the new data. “It’s kind of an anomaly because usually high supply and low demand usually means prices go down, and we haven’t really seen that much of that,” he said.
Broken down by neighborhood, the highest vacancy rate according to CBRE is the Yerba Buena neighborhood at 46.1%. (CBRE defines Yerba Buena as bounded by Market to the north, Bryant to the south, Third Street to the east, and Sixth Street to the west). The neighborhood with the lowest vacancy rate was Mission Bay/China Basin at 18.1%.
Interestingly, Yerba Buena has the highest average asking rent of any business park, but at $82.45 per square foot, it’s just pennies above Mission Bay/China Basin’s average asking rent of $82.28.
The rental market is often boosted by big office deals from tech companies, but San Francisco saw no new deals over 100,000 square feet in the third quarter of the year. In addition, the number of large tenants occupying such large spaces has fallen to five, from nine in the second quarter of the year. Planet Labs, an earth imaging company, completed the largest lease renewal of the last quarter, while software company Asana signed the largest sublease.
“From what our economists see, the [market] The turnaround is likely to happen in the middle of next year, but considering that real estate tends to lag behind the overall economy a bit,” Yasukochi said. “So we probably won’t really see any sustained improvement in the market until the second half of 2023 and into 2024.”
SFGATE reporter Alec Regimbal contributed to this report.