S.F. office vacancy rate hits record
San Francisco’s office vacancy rate hit yet another record high this month, climbing to 36.6%, as leasing activity remains muted.
The vacancy rate was up 1 percentage point from the end of last year and jumped from 29.4% from the first quarter of 2023, according to preliminary data from real estate brokerage CBRE. It’s now up ninefold from the 4% low in the first quarter of 2020, at the start of the pandemic.
First-quarter leasing activity was 1.3 million square feet, down from 2 million square feet in the previous quarter and slightly below the first quarter last year.
Average asking rents fell by $1 per square foot annually, or 1.3% to $68.35, from the prior year. Rents are down almost a quarter compared to before the pandemic, but are still some of the highest in the country.
Empty offices are a drag to the downtown economy and city budget, exacerbating the struggles of local retailers and fueling a wave to property owners seeking lower tax bills.
Colin Yasukochi, executive director of CBRE’s Tech Insights Center, said there were some positive signs: Prospective tenants are seeking a total of 6 million square feet in space, up from 4.2 million square feet at the end of last year. That’s compared to 6.8 million square feet of demand just before the pandemic.
“The San Francisco office market is beginning to transition out of its four-year downturn. While it will take many years to rebalance supply and demand, we are starting to see positive signs,” he said in a statement.
Payments-processing company Adyen signed the biggest lease of the year so far, subleasing 150,000 square feet from Pinterest at 505 Brannan St. Accounting giant KPMG renewed its longtime lease at 55 Second St. for around 125,000 square feet, but only through September 2026.
The return to office in San Francisco remains stagnant, at around 45% of pre-pandemic levels, according to security firm Kastle. That figure has been flat for the past year.
“Return to the office remains a significant barrier to a more vibrant San Francisco. We are seeing more office tenants sign new leases — a sign they are more willing to recommit to the City. However, this dynamic is still somewhat tenuous as employers and their employees still have concerns about public safety and the cost of doing business,” Yasukochi said.
“Additional mandates are unlikely to increase office attendance materially at this point, but rather a booming economy will compel more people to want to be in the office and be better connected to the next growth cycle,” he said.