Office Vacancy in SF Shoots past 37%, Setting New Record

The office vacancy in San Francisco rose past 37 percent, setting a new record. But the number of available offices has stayed flat, suggesting a stabilizing market.

The number of empty offices rose 0.3 percent in the third quarter ending this month to 37.3 percent, from the previous period, the San Francisco Business Times reported, citing preliminary figures from CBRE. It’s the latest consecutive increase since early 2020.

At the same time, office availability — or available offices, whether or not they’re occupied — held even at 39.1 percent.

The jump in vacancy can be largely blamed on X’s departure from its 460,000-square-foot headquarters at 1355 Market Street, according to Colin Yasukochi, who leads the tech insights center for CBRE. The vacancy rate might have stayed the same without X.

The impact of X’s departure on the availability rate was partially offset by new leasing, he said, though tenants continued to shed more offices this period than they leased.

Net absorption — or offices leased minus offices vacated — was a negative 550,000 square feet, according to CBRE.

The good news: Yasukochi said the stagnant availability suggested that the San Francisco office market may be at or near peak vacancy.

“Looking forward, stabilized supply levels and increased demand should start to bring vacancy down in the quarters ahead,” Yasukochi said in a statement. That is already the case, he added, for top-quality offices.

Office vacancy across the city has increased 1.4 percent since the end of last year, to 37.3 percent from 35.9 percent.

Year-to-date leasing activity, at nearly 5 million square feet, puts this year on track to be the best leasing year for San Francisco since 2019, according to the Business Times. Artificial intelligence tenants account for 15 percent of all leasing activity to date.

The quantity of offices sought by prospective office tenants has held relatively steady for the past two quarters in the high 6 million-square-feet range. CBRE is now tracking 27 artificial intelligence tenants seeking 1.1 million square feet of space.

The official numbers for vacancy and availability will wrap up for the third quarter in coming weeks, according to CBRE. Among the deals that could move the needle: OpenAI’s bid to lease a 318,000-square-foot office building at 550 Terry Francois Boulevard.

— Dana Bartholomew