Office vacancies dip in Downtown San Jose and San Francisco

The number of empty offices in Downtown San Jose and San Francisco has dipped, but just a fraction below their all-time highs.

Office vacancy in Downtown San Jose was 35.6 percent in the first quarter, from 35.7 percent in the prior period, the San Jose Mercury News reported, citing a report from Savills. The vacancy in San Francisco was 36.3 percent, from 36.7 percent.

A slow return to the office after the pandemic has hammered downtowns, leaving empty offices, downward pressure on rents and slumping property values. 

It has caused foreclosures of offices, retail and hotel properties, especially in San Francisco.

Savills didn’t survey the Downtown Oakland market, which saw vacancies tick up last quarter.

Colliers reported that office vacancy in Downtown Oakland was 19.7 percent from January through March, up from 19.6 in the previous three months. In July, Cushman & Wakefield pegged the vacancy for greater Downtown Oakland at 35.7 percent.

So far, owners of office buildings have managed to keep rental rates relatively stable in both Downtown San Jose and Downtown San Francisco, according to the Mercury News.

But landlords might find it hard to keep rents up.

In San Francisco, the value of the well-known One Market Plaza, a trophy, three-building office campus on the Embarcadero in the South Financial District, has fallen 29 percent.  Another office building on Market Street had a 90 percent nosedive in its value when it recently sold.

Office building values have also crashed in Downtown San Jose.

In December, the purchase of an office tower at 303 Almaden Boulevard for $23.8 million represented a 70 percent decline in its value compared with its last traded price in 2017.

In February, a two-tower office complex at North Market and West St. John streets was bought for $34.2 million. That price was 77 percent less than what the building traded for in 2019.

The buyers for both of the Downtown San Jose office complexes were groups led by George Mersho, CEO of the Shoe Palace, a footwear and apparel chain based in Morgan Hill.

 — Dana Bartholomew

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