San Francisco Market Update: Office Vacancy Struggles

In August, office vacancy in the San Francisco-Peninsula market reached its highest point so far this year—15.4 percent, a 20-basis point uptick month-over-month (from 15.2 in July), CommercialEdge data shows. The figure was on par with the national average (15.4 percent), which declined by 10 basis points month-over-month.

Year-over-year, office vacancy is 1.6 percent lower, with the initial gap recorded in the first half of this year—down 4.8 percent year-over-year through June—closing. New product is coming online, but leasing activity remains low as the office market continues its transformation. At the same time, investments into life sciences are growing, driving the need for high-quality space.

Meanwhile, vacancies in the Bay Area market—including the East and South Bay—are down by 80 basis points month-over-month, reaching 18.0 percent in August, continuing their downward trajectory from their highest point in March (19.3 percent). Year-over-year, Bay Area office vacancy was 6.2 percent higher as of August.

Among gateway cities, San Francisco is losing ground in terms of office vacancy. As of August, only Chicago had a higher vacancy, at 16.9 percent. Los Angeles fared better with 13.5 percent, while Manhattan continued to remain on top, with office vacancy at 10.8 percent.

In a similar fashion to other gateway cities, suburban office markets continue to experience a higher level of activity than the urban core. However, in August, some urban San Francisco markets recorded a slight decline in vacancy. The North Financial District had a 134-basis point decrease in vacancy month-over-month, reaching 14.7 percent in August, while the South Financial District submarket saw a decline by 158 basis points, to 13.3 percent.

Office vacancy in South San Francisco, marked by large investments into new life science developments, recorded a drop of 94 basis points, reaching 5.1 percent in August.

In the Bay Area, some of the largest submarkets experienced little to no change in office vacancy in August. San Jose North remained at 22.1 percent vacancy, while the Sunnyvale North submarket had among the lowest vacancy rates, at 4.1 percent, also virtually unchanged month-over-month. Vacancy in the San Jose CBD area remains among the highest in the Bay Area urban markets, at 24.46 percent in August.

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