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Commercial
San Francisco

Survey: SF office market slump to persist through 2026

Developers “expect both rental rates and occupancy rates to weaken in the coming year”

UCLA's adjunct professor of economics Jerry Nickelsburg and Allen Matkins' Tim Kelly
UCLA's adjunct professor of economics Jerry Nickelsburg and Allen Matkins' Tim Kelly (UCLA, Allen Matkins, Getty)

With one in three offices in San Francisco dark, it’s no surprise that developers and investors have a dim view of its future officescape.

A survey of industry stakeholders across California focused on San Francisco’s office market over the next several years found widespread pessimism, with diminishing occupancy and rental rates, the San Francisco Business Times reported.

Law firm Allen Matkins and the UCLA Anderson School of Management, authors of the survey, asked between 100 and 150 developers and investors to gauge the Bay Area’s office market by 2026 as a way to predict potential development next year.

Only 14 percent of those queried in Northern California said they planned to break ground on an office project within the next 12 months, the lowest level since 2016.

A similar survey last summer found 43 percent of respondents planned to build within the next year, down from 50 percent in 2021. 

Landlords in San Francisco and Oakland are struggling to fill vacancies and face refinancing loans on buildings at higher interest rates from cautious lenders. 

Savills pegged San Francisco’s vacancy rate at 32.7 percent from January through March, while CBRE put it at 29.5 percent. Colliers said Downtown office availability last spring was more than 31 percent, with South of Market at 40 percent and Yerba Buena at 50 percent of available landlord-direct and sublease space.

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The survey’s participants didn’t see the city’s office market getting better soon.

Participants in Northern and Southern California “expect both rental rates and occupancy rates to weaken in the coming year” and don’t expect the sector to make a full recovery by 2026, according to Jerry Nickelsburg, an adjunct professor of economics at UCLA who helped run the survey.

Uncertainty about future office use has led to a concessionary leasing market in the Bay Area, said Tim Kelly, a San Francisco-based partner at Allen Matkins.

Developers, he said, will likely hold off on building new offices until some of the vacancies across the region have been absorbed. In the East Bay, 35.7 percent of the offices in Oakland’s core business district were vacant last quarter, ending in June.

In San Francisco, only one office project has begun construction since the dawn of the pandemic in 2020. Australia-based Lendlease is now building a 47-story condominium tower with 290,000 square feet of offices at 30 Van Ness Avenue.

When complete, the Hayes Point project will have “absolutely zero direct competition,” Arden Hearing, executive general manager of development on the West Coast for Lendlease, had told the Business Times.

— Dana Bartholomew

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Allen MatkinsUCLA Anderson School of Management
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Office MarketOffice Vacancyrental rates