San Francisco Market Update: Office Sector’s Challenges Persist

San Francisco’s office market had a tough time in 2021. As of December, the San Francisco-Peninsula’s office vacancy reached 15.1 percent, 420 basis points higher year-over-year and just 40 basis points below the national average, according to CommercialEdge data.

As tenants’ needs shifted, office developers are looking to adapt, among the city’s overall effort to get its economy back on track. The metro’s primary urban markets had some of the highest vacancy by the end of the year, all above the average. In the SoMa submarket, the figure was 18.3 percent as of December, while the North and South Financial Districts were at 15.2 and 17.3 percent.

In South San Francisco, demand for biotech space has resulted in a lower vacancy rate, at 6.8 percent. One of the larger leases executed in 2021 was Genentech’s 230,000-square-foot deal with Boston Properties and Alexandria Real Estate Equities, in December. The campus, still under development, is planned to offer 1.7 million square feet dedicated to life sciences.

SmartLabs, a Boston-based Laboratory-as-a-Service provider, announced it will triple its West Coast presence. The company entered an agreement for 140,000 square feet at BioMed Realty’s Gateway of Pacific, also in South San Francisco. SmartLabs plans to scale its operations to over 2 million square feet over the next five years.

The Bay Area—comprising the East and South Bay—market registered 16.1 percent vacancy in December, up by 180 basis points year-over-year. Silicon Valley’s tech giants continued to drive a significant portion of office activity.

The largest lease of the year came from Facebook’s parent company, Meta. In December, the tech company signed an agreement with Tishman Speyer to occupy an entire 719,037-square-foot campus in Sunnyvale. The four-building property was acquired last year for $365 million from NetApp. As of December, the Sunnyvale-North submarket posted one of the lowest office vacancies in the Bay Area, at 1.6 percent. Sunnyvale-East recorded 12.1 percent, while in Sunnyvale-West, the figure was 25.8 percent.

As with the Peninsula market, the Bay Area’s urban centers registered the highest vacancy numbers. San Jose’s CBD had an office vacancy of 23.6 percent as of December. San Jose-North fared better, with 17.1 percent, while Santa Clara had an average rate of 25.5 percent. Downtown Oakland’s figure was at 22.9 percent.

Listing rates in San Francisco suffered a contraction of 1.4 percent year-over-year but remain among the highest nationwide. The average full-service equivalent listing rate was $63.46 as of December, 65.0 percent higher than the national average. Only Manhattan had a higher rate, at $76.45.

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