San Francisco Market Update: Office Sector’s Woes Continue in January

Overall office vacancy in the San Francisco-Peninsula market reached 15.9 percent as of January, up by 80 basis points month-over-month, CommercialEdge data shows. As the metro continues to struggle to recover, the figure dropped below the national average of 15.7 percent. Compared to a year ago, San Francisco’s vacancy was up 410 basis points.

San Francisco was among the few metros where average prices continued to drop. Average full-service equivalent listing rates were down 1.6 percent year-over-year as of January, to $69.18. Nationwide averages for listing rates grew by 1.2 percent year-over-year, to $38.62.

Despite these metrics, the market is poised to rebound at a faster pace in 2022. Confidence was highlighted in January by two significant deals. In the SoMa submarket, Salesforce agreed to sublease 286,000 square feet to personal care and beauty products retailer Sephora. The Paris-based company will occupy 16 floors out of the 30. Salesforce occupies the entire 455,000-square-foot building, developed and owned by Kilroy Realty Corp. Still, vacancy in the SoMa submarket was higher than the metro’s average, up by 330 basis points month-over-month, to 21.6 percent.

A hotbed for the life sciences sector, South San Francisco’s office vacancy recorded an uptick of 40 basis points month-over-month, to 7.2 percent as of January. Gene editing company Graphite Bio agreed to occupy 57 percent of Healthpeak Properties’ Nexus on Grand development, or 86,165 square feet. The space will serve as a new headquarters and research hub.

A majority of submarkets recorded an increase in vacancy. Some which were still below the metro’s average counted the Mission District (up 40 basis points month-over-month, to 9.7 percent) and Burlingame (up 200 basis points, to 13.7 percent), while Menlo Park was among a limited few that recorded a decrease (down 110 basis points, to 13.5 percent).

On the other hand, the Bay Area—comprising the East and South Bay—market remained the second most expensive among metros tracked by CommercialEdge, exceeded only by Manhattan. Average rates in the Bay Area rebounded at a faster pace than most metros, up by 6.2% year-over-year, to $55.79, in no small part fueled by the large amount of new supply. The market had office space amounting to 3.4 percent of total stock under construction as of January.

Overall vacancy in the Bay Area was at 16.2 percent in January. Although the figure is 110 basis points higher year-over-year, on a month-to-month basis, it dropped by 10 basis points.

CommercialEdge covers 8M+ property records in the United States. View the latest CommercialEdge national monthly office report here.