The Blubber

San Francisco metro area had the most office square feet vacated in the US in 2023, per Axios.


In San Francisco, the current vacant office space surpasses the equivalent of more than 20 Salesforce Towers, as per preliminary data from real estate firm CBRE. In the fourth quarter, 35.9% of the city's total office space is unoccupied, representing more than 31.5 million square feet of vacant space, an increase of almost two percentage points from the previous quarter. For context, Salesforce Tower, the city's tallest office high-rise, has 1.4 million square feet of rentable space, making the vacant space equivalent to more than 22 towers.

San Francisco's office vacancy rates reached record highs during the pandemic, and this trend has continued, with the current vacancy level starkly contrasting the sub-5% vacancies seen in the city before the pandemic. San Francisco has witnessed the sharpest rise in vacancy rates among major office markets in the country. This situation is linked to a broader decline in the market values of office properties, leading to lower tax revenues and a municipal budget crunch, while presenting investment opportunities for some private investors.

The fourth quarter saw the expiration of a few leases and the return of several large subleases to the market. The negative net absorption, indicating the loss of occupancy of office space, reached -6.7 million square feet in 2023, the highest since 2020. Despite an increase in leasing activity early in the fourth quarter, particularly with significant deals such as OpenAI securing nearly half a million square feet at Uber's Mission Bay headquarters, experts doubt that the growing presence of AI companies can rescue the city's struggling office market. AI companies, known for limiting headcount through technology, accounted for about 28% of total leasing activity last year.

While Colin Yasukochi, executive director of CBRE's Tech Insights Center, anticipates further rises in vacancy rates in the first half of 2024, he believes they will likely stabilize in the second half. This, coupled with indications that the federal government may cut interest rates next year, offers a positive signal for San Francisco's real estate market.