San Francisco’s office market hit a record high in availability as companies vacated more than 1 million square feet in the city during the first three months of 2022.
The turn came despite an increase in demand spurred by the end of mask mandates and initial steps toward a return to offices among employers in the city. The availability rate — which measures the amount of square footage available for lease regardless of whether it’s already vacant — reached 28.6 percent last quarter, up from 27.9 percent at the end of last year, according to a CBRE report.
Some 1.5 million square feet of offices came to market during that time, offsetting a handful of large new transactions, such as Sephora’s 286,626-square-foot sublease of the Salesforce East building at 350 Mission Street, CBRE data said. That deal, completed in January, remains San Francisco’s largest new office lease or sublease since the onset of the pandemic.
The report found that companies were hesitant to sign new leases at the start of the quarter amid a surge in cases of the omicron variant, but noted that an end to the state’s mask mandate for the vaccinated in mid-February and the unvaccinated on March 1 — as well as industry leaders disclosing firm return-to-office dates — seems to have brought a number of them off the sidelines.
Tenants were in the market for 3.8 million square feet of offices at the end of last quarter, a 31 percent increase from the previous one, CBRE data show.
While demand remains 42 percent below the pre-pandemic high and 3 percent off the first quarter of 2021, the return-to-office momentum is expected to accelerate through this quarter and the second half of 2022, CBRE wrote in its report.
Meantime, average asking rates for offices available for lease but not for sublease remained unchanged in the first quarter and 13.5 percent below the all-time high of about $88 a square foot at the end of 2019, CBRE data show.
As for new construction, no new office projects were delivered to San Francisco’s market last quarter. While 1 million square feet of new development is being built in the city, only one project — the first phase of Mission Rock’s office component, totaling 550,000 square feet — is set to be delivered this year, according to CBRE.