The effective office vacancy rate in San Francisco ticked over 27 percent in the second quarter of this year, representing over 23 million square feet of vacant office space spread across the city, which is up from 21 million square feet of vacant space at the end of the first quarter, including 16.8 million square feet of un-leased and non-revenue producing space, which is up from 13.7 million square feet of non-revenue producing space at the same time last year, and 6.3 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 ticked up by 9 percent over the past quarter to 4.9 million square feet of space, which includes 800,000 square feet of space for AI company growth, that’s compared to over 7 million square feet of active demand in the market prior to the pandemic, at which point there was nearly 80 percent less vacant space as today. And there’s another 4 million square feet of leased space in San Francisco that’s slated to come off lease by the end of this year.
While the vacancy rate continues to climb, the overall average asking rent for office space in San Francisco only inched down 14 basis points over the past quarter to $72.16 per square foot, which is only 4.6 percent lower than at the same time last year and roughly 13 percent below its 2020-era peak, as landlords’ fight to keep asking rents up, with the cost of capital having jumped and another shoe poised to drop.
Once again, “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. And yes, there are higher vacancy rate numbers making the rounds, but it’s the consistency of the data set and context going back over a couple of decades, as our numbers do, that matters and there’s a lot of poor reporting and cross analysis, between data sets, making the rounds.