Having held at a pandemic high of 21.7 percent in the second quarter of this year, the effective office vacancy rate in San Francisco ticked up another 130 basis points in the third quarter to 23.0 percent, representing 19.9 million square feet of vacant office space in the city, with the amount of space which is technically leased but unused and being offered for sublet having increased for the first time in six quarters to 5.2 million square feet and the amount of un-leased space having increased from 13.7 to 14.7 million square feet, according to data from Cushman & Wakefield.
As we outlined at the end of the second quarter, “while the tally for the second quarter vacancy rate in San Francisco did include Google’s agreement to sublease 300,000 square feet of space at 510 Townsend, it did not include the 412,000 square feet of space that Salesforce is now offering for sublet in its tower at 50 Fremont Street, the inclusion of which would push the office vacancy rate in San Francisco to over 22 percent with over 19 million square feet of effectively vacant space,” and demand for space had sharply dropped.
As a point of comparison, there was less than 5 million square feet of vacant office space in San Francisco prior to the pandemic with a vacancy rate of 5.7 percent and the vacancy rate in San Francisco has averaged closer to 12 percent over the long term.
While the estimated active demand for office space in San Francisco did jump from 3.1 million square feet at the end of the second quarter to 4.8 million square feet at the end of last month, that’s compared to over 7 million square feet of demand prior to the pandemic with significantly more available space. And while the overall average asking rent for office space in San Francisco ticked down a little over 1 percent in the third quarter to $74.80 per square foot, and has dropped around 10 percent from its peak in 2020, the decrease is largely attributed to a shift in the mix, with “rents in top tier buildings hav[ing] held strong and, in some cases, climbed higher over the past few quarters.” We’ll keep you posted and plugged-in.