Office Vacancy in San Francisco Reaches a Record 34%

Despite an uptick in San Francisco office leases by artificial intelligence firms, vacancies have increased and broken another record.

Vacancy within the city’s 87.6 million square feet of offices hit 33.9 percent in the third quarter, up from 25.9 percent during the same period last year, the San Francisco Business Times reported, citing preliminary figures from CBRE.

The availability of offices, either vacant or for lease, reached 37.5 percent from July through September, compared to 31.3 percent a year ago.

Net absorption of the volume of new offices leased minus offices vacated came to a negative 2 million square feet.

New leases this quarter made up less than 800,000 square feet, a low for the year, said Colin Yasukochi, who leads CBRE’s tech insights center. The results may vary as the firm’s third quarter data becomes final.

Despite a growing number of empty offices, demand for cubicle space is ticking up, much of it from AI companies, he said. But the city’s vacancy and availability rates will likely rise for at least a couple more quarters — with tangible impacts of AI’s expansion showing by next summer.

The quantity of offices being sought by prospective tenants rose to 5.2 million square feet in the third quarter, up from 4.5 million square feet last quarter and 3 million square feet in the third quarter of last year.

Half the demand is from growing AI firms, Yasukochi said, some aiming to double or even triple their footprints.

“Whereas firms that are a lot more stable in terms of what they’ve been doing have been more accommodating with hybrid work, these startups and emerging technology companies really need to have their people in, face-to-face,” he said.

Office vacancy rates have risen steadily in San Francisco since March 2020, when the city’s tech companies led a shift to remote work.

Mayor London Breed has declared San Francisco “the AI capital of the world,” as dozens of AI startups set up shop in the Financial District, South Beach, SoMa, and the edge of the Mission District. In June, JLL reported AI firms had leased offices in 80 buildings across town.

Hive took up 57,000 square feet at 100 1st Street this summer in a sublease from Okta, according to the Business Times.

This month, Anthropic agreed to sublease Slack’s 230,000-square-foot headquarters at 500 Howard Street in South of Market for undisclosed terms. The deal is pending.

Also, startup Andi is now moving its headquarters from Miami to 600 California Street in the Financial District.

— Dana Bartholomew