The effective office vacancy rate in San Francisco ticked up to just under 25 percent in the first quarter of this year, representing over 21 million square feet of vacant office space spread across the city, including 15.8 million square feet of un-leased and non-revenue producing space, which is up from 15.2 million square feet of non-revenue producing space at the end of last year, and 5.3 million square feet of space which is leased but unused and being offered for sublet, according to data from Cushman & Wakefield.
As a point of comparison, there was less than 5 million square feet of vacant office space in San Francisco prior to the pandemic and the office vacancy rate in San Francisco has averaged closer to 12 percent over the long term, with a much smaller base of buildings.
At the same time, while the estimated active demand for office space in San Francisco did increase by nearly 18 percent in the first quarter of this year to 4.5 million square feet, that’s compared to over 7 million square feet of active demand in the market prior to the pandemic, at which point there was a fourth as much vacant space as today.
With the continued increase in the vacancy rate, the overall average asking rent for office space in San Francisco dropped another 190 basis points over the past quarter to $72.26 per square foot, which is 4.5 percent lower than at the same time last year and around 13 percent below its 2020-era peak, despite landlords’ efforts to keep asking rents up and with a “large quantity” of commercial mortgage debt that’s slated to mature this year, which is poised to stress the office market even more and force some hands, with the cost of capital having jumped, for both owners and occupiers alike.
And as always, “while it’s tempting to see, promote or editorialize an opportunity to convert all the vacant office space in San Francisco into housing, the conversion of existing office space to residential use still makes absolutely no economic sense for the vast majority of San Francisco buildings, due to the relative value of each use and the costs of conversion,” as we’ve outlined for over a year and others have finally started to figure out.