SF Office Vacancy Hits All-Time High, Beating Dot-Com Drop

Office rental prices in San Francisco have fallen steadily over the past year, hitting a monumental low in the first quarter of 2021.

Prices fell 14.8% last quarter, making it the first time in five years that Manhattan’s office rental market is more expensive than San Francisco’s, as the San Francisco Chronicle first reported. (SFGATE and the San Francisco Chronicle are owned by Hearst but operate independently.)

SF offices rented at an average of $ 75.32 per square foot in the first three months of the year, compared to Manhattan’s $ 75.99 per square foot, according to data from brokerage CBRE.

In early 2020, the office vacancy rate was around 4%, but has since quadrupled to 19.7% at the end of March 2021, according to CBRE. Manhattan’s vacancy rate reached 12.5% ​​in the first quarter of the year.

That makes a total of 16.3 million vacant square feet in the city, with more than half of the space in vacant subleases. There is typically about 1 million square feet of sublease space in the San Francisco market at any given time, but as the pandemic drags on, companies caught up in leases are trying to win back some of their losses. With an additional 1.5 million square feet of sublease space added in the first quarter, there is now a total of 9.5 million square feet on the market. Subleases represent 45% of all available office space.

“It is too early to tell if office rents have bottomed out. San Francisco direct sales office general rents decreased 1.5% in the first quarter of 2021 and optimism abounds with widespread vaccinations in April and the possibility of restrictions being lifted in June if the state hits certain targets “Said Lexi Russell, CBRE’s director of research and analysis. “However, with nearly 26% of office space being marketed as available, there are still hurdles to overcome before rent hikes return in earnest.”

SF’s first quarter vacancy rate also surpassed the previous record of 19.1% at the peak of the downturn of the dot-com era. The city also lost its title as the leading market for “giant technology leases” for the first time in history, moving from 1st to 6th in the CBRE rankings.

Even with increased vaccination efforts, offices are only slowly beginning to reopen in San Francisco, with some of them opening with much smaller office space. In March, Salesforce, the city’s largest private employer, canceled its 325,000-square-foot lease on the unbuilt Parcel F tower in San Francisco’s Transbay neighborhood after the company announced in February that more than half of its workforce will continue to work remotely or flexibly after the pandemic ends. It is also subletting part of its offices at 350 Mission St.

Other companies that have recently included offices on the list include Yelp, which has its 161,876-square-foot office space at 140 New Montgomery St. for rent in October 2021. WeWork is closing five downtown locations and Old Navy also announced in February that it would close its Mission Bay offices and move into the workspace of parent company Gap Inc.

When Twitter listed 104,850 square feet of its 1 10th St. building in sublease in September 2020, it was one of the first as the social media giant announced early in the pandemic that a permanent work-from-home option for its employees would be available.

Perhaps the most famous example of tech companies downsizing is when Pinterest paid $ 89.5 million to terminate the lease for 88 Bluxome, a high-rise complex to be built near the company’s current headquarters in San Francisco.

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