San Francisco’s office vacancy rate has now reached its highest level on record, climbing to 24.8% in the third quarter of 2022 according to a new report from commercial real estate firm Cushman & Wakefield. The city’s vacancy rate has risen steadily since the start of the COVID-19 pandemic as companies have reduced office footprints.
Many San Francisco firms have opted to cut excess office space as more employees continue working from home full or part-time. Overall office occupancy in downtown San Francisco remained below 40% as of October 2022, according to building access data. The low occupancy has made maintaining expansive pre-pandemic office footprints less essential.
Subleasing long-term office space has also driven vacancies higher as companies put chunks of leased space back on the market. Facebook parent Meta is reportedly looking to sublease some 30% of its office space in the city.
San Francisco’s office market contrasts sharply with its suburban counterparts. Office vacancies outside the city are mostly in the single digits, while vacancies in core markets like the Financial District and South of Market stretch past 30%. Total vacant Class A office space in San Francisco totals around 25 million square feet.
Nonetheless, experts say San Francisco’s urban office market appears to be stabilizing after vacancies soared earlier in the pandemic. New high-profile office developments, like the planned Oceanwide Center and recently opened Salesforce Tower, show long-term confidence in San Francisco. But the downtown office landscape may need to be reimagined.
“The future is all about quality over quantity,” said Robert Sammons, Bay Area research director at Cushman. With less need for desk space, he suggested offices could see more meeting areas, hybrid workspaces, and amenities to attract workers.
The return of tech conventions like Dreamforce also promise to restore some of San Francisco’s lost office buzz. But real estate firms expect vacancy rates to remain elevated over the next two years as companies continue optimizing their space needs. For now, the surplus of space hands leverage to tenants to negotiate favorable lease terms and concessions.