Office Vacancy Rate Continues to Climb in San FranciscoApril 16, 2021
In addition to 7.87 million square feet of un-leased office space now spread across the city of San Francisco, which is up from 6.7 million square feet of un-leased space just three months ago, there is now another 7.99 million square feet of office space which has been leased but is sitting vacant and being offered for sublet, which is up from 7.2 million square feet of sublettable space at the end of last year, according to Cushman & Wakefield.
As such, there is now 15.85 million square feet of vacant office space spread across the city for an overall vacancy rate of 18.7 percent, which is up from a vacancy rate of 16.7 percent three months ago and versus a vacancy rate of 6.0 percent at the same time last year. And that’s not including another 1.3 million square feet of space that’s either under construction or in the process of being renovated.
At the same time, while leasing activity has inched up from a 30-year low at the end of 2020, only 433,000 square feet of space was leased in the first quarter of 2021. And that’s versus 1.1 million square feet leased in the first quarter of last year, a long-term average of around 1.6 million square feet per quarter and a post DotCom-era low of 933,000 square feet leased in the second quarter of 2001.
And while landlords had held firm through the second quarter of last year, the average asking rents for office space in San Francisco has now dropped 12 percent to $73.76 per square foot, per year, which is back to mid-2018 pricing when the vacancy rate was running closer to 7 percent, which suggests there’s quite a bit further to drop.
Comments from Plugged-In Readers
Still too expensive. Let it drop more.
Yikes. This has so much farther to fall.
Well to be fair, the first QTR of last year was largely unaffected by COVID, so of course there’d be a drop
(Wait, what?? That was meant to show things were already looking shaky EVEN BEFORE everything went to He**) Oh.
But I’m sure everything will be fine: just today an economist with WFB said “great cities always recover” (and don’t let the fact that he doesn’t actually live here worry you about his credibility].
The SF Business Times is reporting that the vacancy rate for the end of Q1 is actually 19.7%. Of that 9.9 million feet is in the sublease market. Since the end of March Trulia has put its whole block of SF space on the market- 105k feet. Jull just put 266k feet of space up for sublease and Knotel’s 84k of SOMA space is also on the market. That is over 400k feet of space added to the sublease market just last week. It is likely the vacancy rate goes significantly above 20% given the Business Times numbers. How the massive amount of available space will be filled is anybody’s guess but it will take perhaps a decade or more to do so.
~20%: Gee, Dave, that’s just what the chart shows.
Meanwhile, more downsizing in the South Bay.
NetApp is cutting its Silicon Valley footprint in half. It’s sold its Sunnyvale headquarters and is moving to San Jose.
Sunnyvale is overpriced and space constrained. San Jose has been very progressive about development. Google is moving in with their multi-billion dollar development.
Maybe the concept of eternal population and economic growth in a seismically dangerous, overcrowded area is not a good thing? We are in the second year of devastating drought in a decade characterized by drought. Of course, I don’t see how moving to Texas or Phoenix will avoid climate change, but maybe the whole state needs to downsize? And Dave: Two words for your “Cascadian Fault.” I am sure your beloved Seattle will do just fine once the tidal wave washes away everything west of I 5.
Now what? Retail and service support good bye ..downtown a ghost town filed with homeless and crime ..thanks city management…
Isn’t this what everyone wanted? They got exactly what they all voted for. Why are people complaining now? As they saying goes, be careful what you wish for.
Would have been great had we not razed most of our industrial and warehousing in SOMA in the blind pursuit of now-surplus, now useless office blocks
Hindsight is 20/20. Some of the empty office space will be converted to residential use. However, many of the newer office buildings are not conducive to conversion to residential. Another possibility is life science use. The Giants and their developer partners are looking into converting the yet to be built office portion of their project to bio-tech use. The Mission Bay area will appeal to some bio-tech firms but the tax situation in SF and the lower rental costs in SSF begs the question of how much of the empty space will actually be taken by bio-tech.
In the meantime the massive Oceanwide project has been abandoned. 88 Bluxome’s developer recently announced the project will be scaled back. The underground tennis complex has been axed. Additionally the developer said without a major pre-construction tenant (as Pinterest was) the project won’t go forward. The fate of the other major SOMA projects near 88 Bluxome are in doubt also. The approvals are there but the demand is not and may not be for a decade or more. The opportunity cost of money could see developers putting these entitlements up for sale and shifting their active development to other markets.
A secondary effect is the impact on housing development. With the once ballyhooed big increase in Central SOMA office workers not going to happen the Hub project is not viable. This project was geared specifically to the tens of thousands of projected new workers touted by the Central SOMA plan. Parcel F recently got approval (final) over Peskin’s objections. His issue was that the developer would no commit to starting work on the project anytime soon. Meaning the benefits flowing to the City such as BMR housing may not see the light of day for a long time.
Life science is a Commercial realtors pipe dream. Most biotech ops can’t be retrofitted to densely packed urban block towers, requires a campus setting – and they don’t need much more beyond what they have.
Exactly. The Gian’s are thinking of converting to bio-tech. This is on buildings not yet started where the design can be tweaked. The campus setting to the extent it exists is in the MB area. 88 Bluxome apparently is not trying to go bio-tech and that may be because it is too far from MB. To your point, 5M is about to open. 650k feet and not a taker. Can’t be converted to bio-tech or residential. Projects like that will not be seen in SF again for a long while.
Going forward the action will be in low rise bio-tech or life science projects. I assume HP/CP will try to go this direction with their office component – 3 million to 4 minion feet. They were having trouble getting interest from office tenants and at one point were going to devote a significant amount of the office component to educational use. There are several million feet of office space proposed in he SE waterfront projects. Perhaps they will convert to all residential or go for bio-tech space which could be viable given their location. No way will they build standard office space as initially proposed.
Most of this is likely to go to San Mateo County (South San Francisco, San Bruno, Millbrae Cluster) due to incumbency, availability in addition to connectivity and cost advantages. Doesn’t make financial sense to spend RE dollars in SF for Bio-tech.
It’s not the building it’s the location. Biotech needs manufacturing space and transport logistics. Setting it smack dab in the middle of downtown sf won’t work, regardless if bldg can be constructed to not somehow conform to traditional vertical office tower format.
@Cave Dweller – Agree that the large majority of new life science/biotech jobs will go the San Mateo County and not SF. SSF is expected to double its bio-tech workforce in the next few years. 12 million plus feet of bio-tech space is going to be built in SSF over the next decade. The SF Business Times just had a piece about how SSF bio-tech is spilling over to San Bruno, Millbrae, Burlingame and further south on the Peninsula. All those cities are actively planning to draw jobs and corporate offices in the life sciences. Post pandemic the Peninsula is an increasingly desirable place to live and to work. The region is finally allowing for large office and residential complexes to be built near the CalTrans line. An office complex near the Bay in Burlingame was recently delivered fully leased in contrast to 5M which is being delivered empty.
CalTrans proximity is what makes the Peninsula so attractive for more bio-tech. On that score CalTrans is looking at merging into BART. A long overdue consolidation. One that hopefully would prioritize a new Bay tube from Oakland to SSF or Millbrae/Burlingame instead of a CalTrans extension to downtown SF which no longer makes logistical sense.
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@Dave (Seattle dude) .. yep! San Mateo County has certainly emerged stronger from the Crisis.
I forgot to mention Foster City which is another existing hub for Bio-tech (Gilead Sciences).
Daly City too has a smattering of Bio-tech. Even for IT, I just no longer see the SF RE appeal.
San Mateo City itself is emerging as Data Science/AI hub. You are absolutely right about Caltrans proximity/connectivity. The county itself is very well managed with great schools, weather, services, culture and is a much better place to live for families (IMO).
@Cave Dweller – SF is no longer desirable as a jobs center. For a host of reasons. Prop C imposes a tax on SF headquartered firms which fail certain equity tests. Sounds like Visa may so do. It’s CEO just moved to Florida and Visa is denying rumors that a move out of SF is in play. We’ll see.
The Peninsula offers a far better quality of life in terms of open space, schools, climate and great housing options. Downtown Burlingame is “dope”. Much nicer than Lombard Street or Cow Hollow in terms of an intimate shopping/dining experience. Finally, Burlingame is moving forward with office/residential development on many of the downtown parking lots. One new office development will have about 200k feet of space. Which is huge for Burlingame. Redwood City is developing a million plus foot office project and 1000 plus housing units at the old Sequoia Caltrans Station. A major office project was recently delivered there and did so fully leased.
Housing is the key. San Mateo County has refused to allow multi-family housing pretty much for the past decade. Drive down El Camino to see the evidence of that. That has changed – huge (300/400 plus units) developments are moving forward. To be sure all east of El Camino but still. The fatal mistake SF made was to not tie new office development to new housing development. Concurrently. San Mateo County has apparently seen the folly of that and most of these new office developments are partly residential developments.
Still, it is controversial. SSF is looking at disallowing single-family zoning. The area around Grand Ave is all single family homes with a small downtown strip. It is an odd situation. Downtown SSF has always felt weird to me. In any case there apparently is not a lot of pushback and you may see the expansion of the downtown commercial corridor as well as medium sized housing developments replacing the SFH’s. I am not a fan of eliminating single family zoning BTW.
Don’t forget the East Bay/Oakland. Emeryville and Oakland are gunning for a piece of the biotech pie. Large new projects have been announced for Emeryville and Oakland is considering gearing the A’s missive office project to life sciences. Oakland has recently lured PG&E away and Credit Karman. The just confirmed PG&E lease in Oakland drops their vacancy rate to 13.5%. Not great but lots better than SF. Twitter is rumored to be looking for office space in Oakland after they abandoned plans to expand in SF. A Twitter headquarters move to Oakland is not out of the question.
Meanwhile, as San Mateo County cities and cities in the East Bay are aggressively moving to take businesses away from SF, SF is doing nothing. TPTB seem unconcerned or complacent about the collapse of SF as a jobs center. They are focusing on giving more benefits to City employees who were not laid off during the pandemic, who can work from home and who, frankly, are largely milking it.
The more [TPTB] keep piling woke-ist requirements on people and corporations — simply more of them will vote with their money followed by their feet. Equity/diversity hiring is understandable. But to the extent those hires can pull their weight. If they can’t then (in a hypercompetitive world) its a drag on the rest. The moment anyone pulls the equity/diversity line its a workplace/HR nightmare. The benefit for corporations in woke-ism extends so far as to gain social capital and virtue signal to drive political rhetoric/lobbying/leverage — but no direct money.
Woke-ism needs a lot of money to sustain it. But its in the nature of money to simply chase merit/opportunity/yield. That is the ongoing internal conflict in the C-suite(s).
The hard fact of it is, woke-ism is cost/revenue inefficient. And to alienate the polite, accommodating and non-vocal majority is simply bad business. The case-in-point is the current ongoing mess with SFUSD. And also the facts of several woke-ist corporations expanding in Texas/Florida both non-woke-ist states.
Hopefully SF will fast be educated in the obviousness of the futility of woke-ist thinking and grows up.
Gunning for? I won’t comment further on your…uhm, remarkably poor choice of metaphor, but the Eastbay has long been a BT hub.
As for SF Narcissus syndrome: it will continue as long as the enablers offer up their San Francentric worldview…one doesn’t need not leave this site to find it…
Before the city runs headlong into another banker/developer/landlord/RE huckster generational scam (“Let’s turn all the empty buildings into moar housing! Or biotech!! Or space teleports!!!”), we need to acknowledge and come to terms with the methodology of the real estate-based class war and its ongoing displacement of thousands of working class families from work and home in SF. “Hindsight” my @ss, Dave. Instead of “whocouldaknowed?,” those responsible need to be held responsible.
Gentrification is racism.Class war never sleeps.
Why does it make sense to “preserve” significant industrial space in San Francisco? There are eight other counties in the Bay Area, most with better access to rail, freeways, trucking. Your comments are always parochially focused on Sa Francisco as if it were an island nation. Industrial and warehouse jobs make far more sense in Oakland, in Fairfield, in Stockton. Plus, your vaunted working class can more easily afford a single family house with a garage and a small backyard. Which is still what most people want, even now.
Plus, screwing the working class was a decision made not by local real estate developers but by our owners 40 years ago when the decision was made to deindustrialize the United States and its pesky unions and environmental regulations. How much industrial space does San Francisco need to preserve when everything is assembled in the Yellow River Delta or Vietnam?
Marxist cant sounds wonderful and I am sure is very therapeutic.
Tbf, industrial/warehousing flourished in SOMA for 50 years until driven out by tech-fuelled RE speculation
Granted. But my main point remains. industrial/warehouse makes more sense right next to the port and the rail yards. Or the interstates in Fairfield and Vacaville. I actually would not disagree that SF may regret its pursuit of office office office, but…the idea that it is some conspiracy against the working class is questionable to me.
Tbf, much of SOMA was a skid row before the brick and timber warehouse buildings were rehabbed in the 1990s to accommodate burgeoning tech. Do you remember what the area surrounding the Transbay Terminal was like as recently as 15 years ago?
One of the biggest land uses in SOMA prior to the tech boom was simply surface parking for downtown workers. The warehouse and industrial use was already waning. There was even a RV park in SOMA for Winnebago Warriors.
convert to housing, potentially maybe? NYT just did an article about the difficulties of this strategy, though it only scratched the surface. mid-century SF office towers tend to be large-floor-plate, whole-block buildings, which makes converting to housing inefficient. would love to see a study that compares cost-per-unit (new construction) versus cost-per-unit (office tower conversion) in SF.
Several corporate(s) that I know of want people back in offices. But many of them are going back to 3 day / 2 day alternate week model (50% or less capacity). Very few are going back to 5 days/week (100% capacity) office model.
Why is this even news? While the writing was on the wall pre-pandemic, when businesses are shut down by government fiat,there could be no other result?
The irony is, what was attractive about San Francisco to tech employees is the very thing they killed and they don’t want to live in the city anymore. The city that sold its soul for a bag of gold is now a ghost town.
The weird thing is so many people seem enthusiastic about the all on line all the time life. One commenter on another site said that he hoped all retail goes away. This idea that we should just cower in our exurban gated communities and never leave for anything seems like a terrifying future to me
Just a reminder, the City dropped over 100K in population before and it can just as easily do it again. And for the very same reasons. It was only in 2000 the SF topped its population of 1950. The policies of the anti-growth incomers of the mid 60’s to mid 70’s gutted whole sectors of the blue collar / small professional services job sectors. 50K plus jobs in the City gone in a decade or so. And people followed the jobs to the outer Bay Area. Then public schools were gutted in the 1970s and 1980’s by “activists” bent on social engineering. So the families who could not afford private schools left the City.
Given the trajectory of the last 5 to 10 years in City governance I can easily imagine the 2030 census showing a City population in the 750K range. Around where it was in the late 1990’s. And trending down.
UPDATE: Visualizing All the Vacant Office Space in San Francisco
SF liberal politics has brought us to diarrhea on the sidewalks, homeless crazies zombifying FiDi, and coddling of racist attacks on our long suffering Asian citizens. Biotech and tech in general has a high representation of Asian professionals, and I wouldn’t blame them for not wanting to work here. Liberal demagoguery is playing out in the city and it will soon become like Philadelphia, Chicago, and Detroit where Dem corruption and racism reign.
Unrestricted ‘woke’ lunacy and a city run by [lefties] who aren’t even qualified to be cashiers in the private sector has made SF a laughingstock of the world. It is a lesson of how one of the richest places in the world ends up financing too many crazies, and given them too much power.
Market forces are manifesting. The good news is that tech companies can save this money, increase their earnings, or hire more people.
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