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Commercial
San Francisco

Tenant improvement packages more than double in Silicon Valley

Bay Area office tenants shrink footprint in SF and expand in suburbs

Bay Area landlords upping concessions dramatically to bring in tenants, according to Avison Young
Avison Young's Howard Huang and Dina Gouveia (Avison Young, Getty)

Tenant improvement packages have more than doubled since before the pandemic in Silicon Valley, the Bay Area’s most competitive office market, according to research from brokerage Avison Young. 

Between 2016 and 2020, South Bay landlords offered just over $8 per square foot for TI. That number jumped to $17 per square foot between 2021 and this year, a larger percentage increase than in San Francisco or the East Bay. 

East Bay tenant improvement packages went up the least, percentage wise, but had the highest pre-pandemic figure at more than $30 per square foot. It is still the highest in the region at close to $40 per square foot since 2021. 

San Francisco’s TI is up about 60 percent compared to pre-pandemic figures and stands at about $32.50 per square foot. The city also had by far the biggest increase in free rent, offering nearly three months free on average since 2021, nearly double the pre-pandemic figures.

“Rents are still high in San Francisco compared to other markets and we’ve seen landlords offer more concessions there but not lower rents as much as we’d expect,” said Dina Gouveia, Avison Young’s market intelligence manager for the West Region. “This could be due to the volatility in the debt and equity market and the need to maintain price points.” 

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San Francisco also has encountered the hardest resistance getting workers to come back to the office, a smaller problem in the suburbs because commutes to offices there are typically shorter, she added. Companies have therefore been consolidating their offices over the last few years in the East and South bays and have increased their average lease sizes in both markets, even as the average lease size in San Francisco has fallen by 16 percent since the pandemic, to about 13,300 square feet. East Bay lease sizes are up 15 percent since the pandemic, to more than 14,600 square feet, and South Bay leases are up by over a quarter to more than 17,000 square feet.

“We believe the types of companies signing leases in the East Bay and Silicon Valley are taking larger square footages than in the past to either consolidate multiple locations or have completely moved away from San Francisco to be closer to the workforce,” said Howard Huang, an Oakland-based Avison Young analyst.

He pointed out that the East Bay figures are “slightly skewed” by the PG&E lease at 300 Lakeside in Oakland, and that the overall data took into account new direct and sublease deals and not renewals. 

This is also data averaged over the last two years, and TIs have come down again in the city of late, Huang added, which could mean the market is stabilizing. As that happens, these pandemic-era concessions will likely decline, he said. 

“It all comes down to return to office and increasing occupancy levels, which could improve once rents come down enough to incentivize companies to start leasing up space again,” he said. 

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