Big Office Leases in SF Suggest Market May Have Hit Bottom

As the number of vacant offices in San Francisco hits a new high, two deals for more than 600,000 square feet show signs of hope.

UC San Francisco won approval to lease a 300,000-square-foot anchor in a new building within a sweeping redevelopment of the defunct Potrero Power Station in Dogpatch, the San Francisco Chronicle reported.

A day later, OpenAI subleased a 315,000-square-foot building that once served as Old Navy’s headquarters at 550 Terry Francois Boulevard in Mission Bay.

The combined 615,000 feet of office deals were the biggest in one month since the dawn of the pandemic four years ago.

They also didn’t factor into the record 37.3 percent vacancy rate in the third quarter ending this month, an increase of 0.3 percent from the prior period, according to preliminary figures from CBRE.

The record vacancy marked the latest consecutive increase since early 2020. At the same time, office availability — or offices seeking a new tenant, whether or not they’re occupied — held even at 39.1 percent.

The firm reports 8.7 million square feet of offices are available for sublease — about 100,000 square feet more than in the previous quarter.

New York-based accounting firm KPMG also leased a 96,300-square-foot office in Foundry Square III at 505 Howard Street, in the South Financial District. But the deal won’t help the city’s long-term vacancy, as the firm expects to move from its 143,000-square-foot office at 55 Second Street in September 2026, for a 32.6 percent reduction in its overall office footprint.

“This has been one of the strongest months of leasing that we’ve seen since 2019,” Mark Geisreiter, a veteran broker with Newmark, told the Chronicle.

Other brokers say San Francisco’s troubled commercial real estate market may have reached its end.

“I think we’re at the bottom of the market in San Francisco, and now it’s a matter of how long we will remain here,” Derek Daniels, regional director of research for Colliers, told the newspaper. “The signs are pointing towards more positivity, rather than taking steps back.”

— Dana Bartholomew