San Francisco has 27.1 million square feet of office space available across the city, a record high, according to new data recently released by commercial real estate firm CBRE. If you need a visualization of that staggering number, that’s just over 20 Salesforce Tower’s worth of office space available — and SF’s tallest building has 1.35 million square feet of office space across its 59 floors.
If leasing activity keeps pace with its current trajectory, upcoming quarters could continue to get worse, given that 50% of current sublease space is set to expire in 2025. “The vacancy rate is going to continue to creep up over the next couple of quarters because demand remains subdued right now and that all relates to the uncertainty around the economy and the amount of space companies need,” said Colin Yasukochi, CBRE’s Executive Director of Tech Insights.
Mayor London Breed spoke about her concerns with the city’s high office vacancy rate last week in an interview with Bloomberg News. The remote work policies of tech companies are part of the problem, Breed said. She pointed to Salesforce as an example. “[Marc is] very supportive of the city, continues to contribute that support to schools and to other great causes, but the building is empty, and that’s a real problem,” Breed said.
Empty buildings depress property values, which affects the amount the city makes in property tax revenue. Workers are also using public transportation at lower rates, and are spending less on goods at local businesses since they spend more time inside their homes.
Breed plans to coax businesses in growing industries, such as biotechnology and green technology, to fill empty office space.
Meanwhile, asking rents on directly leased space haven’t budgeted much. Rental prices are down just 2.6% compared to the first quarter of the year, though it’s down 13% from an all-time high in 2019. Yasukochi said he thinks that’s the most interesting takeaway from the new data. “It’s somewhat of an anomaly because normally high supply and low demand usually means prices are coming down, and we haven’t really seen that much of that,” he said.
When broken down by neighborhood, the highest vacancy rate according to CBRE is the Yerba Buena district 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 all the commercial districts, but at $82.45 per square foot, it’s only cents above Mission Bay/China Basin’s average asking rent of $82.28.
The rental market is often bolstered 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. Furthermore, the big tenants that do occupy space that large have decreased to five, down from nine in the second quarter of the year. Planet Labs, an Earth imaging company, completed the largest lease renewal of last quarter, while software company Asana signed the biggest sublease.
“From what our economists are seeing, the [market] turnaround will probably be during the middle of next year, but keeping in mind that real estate tends to lag the overall economy a bit,” Yasukochi said. “So it’s probably not until the latter half of 2023 and into 2024 that we’ll really start to see sustained improvement in the market.”
SFGATE reporter Alec Regimbal contributed to this report.