Tech downsizing pushes SF offices to “record high” vacancy

San Francisco’s office vacancy rates have hit new heights, according to Colliers third quarter market report, which said that tech downsizing led to “record high” office vacancy.

The city’s overall office vacancy rate was above 21 percent in the third quarter, according to Colliers, and its “availability rate,” which includes subleases, was more than 27 percent. That’s an “all-time high” with negative 3.5 million square feet of net absorption year-to-date in 2022, according to the report. At this rate, the city will end the year “deeper in the red” than 2021, when it had more than 3.6 million square feet in negative net absorption and a 16 percent vacancy rate.

The vacancy rate was highest in Yerba Buena at over 45 percent, in part because Brookfield just opened its 640,000-square-foot 25-story 415 Natoma office building in March, part of its larger 5M office, retail and housing redevelopment.

As for positive absorption, Thumbtack is the only high-profile lease thus far. It took the entire 13th floor for its new “library” concept, with half of the office open for socializing and collaborating and the other half for “heads down” independent work and video conferencing calls.

Vacancy rates and rents varied widely depending on office type and neighborhood, with Class A premium view rents “at a new watermark high” of more than $110 per square foot, according to the report, representing an increase of 5.8 percent quarter-over-quarter and 2.3 percent year-over-year. Class C space downtown and in the Financial District was renting for half that amount, and the availability rate was 31 percent for Class B space downtown.

“We are probably seeing the widest spread on record between top-tier pricing and commodity,” said Colliers data head Derek Daniels.

The higher rents in Class A spaces are often being offset by generous tenant improvement packages, as employers try to lure tenants back to the office with prime spaces, Daniels said.

“Tenant improvement packages have increased significantly during the pandemic. In some cases, tenant concessions—in tenant improvements and free rent—have nearly doubled since year-end 2019,” he said.

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