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San Francisco Office Vacancies Hit Another Record!

San Francisco Office Vacancies Hit Another Record!

Real Estate

Bay Area Office Vacancies Reach Record Highs Amidst Tech Industry Downturn

In a startling revelation for the Bay Area’s real estate market, office vacancies have surged to unprecedented levels, a trend that experts warn might worsen in 2024. This alarming rise is attributed to the ongoing cutbacks in the tech industry, which have left a significant mark on the region’s office market, according to a recent report by Savills, a commercial real estate firm.

Record High Vacancies in Silicon Valley and San Francisco

The report indicates a dramatic increase in office availability rates in both Silicon Valley and San Francisco. By the end of 2023, Silicon Valley’s office availability rate hit an all-time high of 27.5%, meaning that over a quarter of the region’s office spaces were unoccupied. San Francisco fared even worse, with its office availability rate soaring to a historic 36.7%, indicating that more than one-third of its office space was empty.

Underlying Causes of the Rising Vacancies

The slump in the Bay Area’s tech industry is largely responsible for these skyrocketing office availability levels. Factors contributing to this trend include a combination of vacant spaces and areas being offered for sublease. San Francisco’s situation is further exacerbated by a “doom loop” of crime, homelessness, and economic challenges. This has led to one of the lowest return-to-office rates nationally, coupled with concerns about declining quality of life and safety in the city.

Notable Real Estate Transactions Amidst the Downturn

Despite the overall bleak outlook, some significant real estate deals were made in 2023. Walmart inked a massive sublease deal in Sunnyvale for a total of 719,000 square feet, occupying a tech campus previously leased by Meta Platforms. Additionally, Sutter Health leased 324,000 square feet in Santa Clara, securing three buildings for the healthcare giant.

The Future Outlook

The year 2023 was particularly harsh for the Bay Area office market, and predictions for 2024 suggest a continuation of this trend. The report by Savills, prepared by regional research director Erin Proto, forecasts a further increase in office availability in Silicon Valley. The retrenchment of the tech sector is a key factor driving these vacancy rates higher.

Impact on Rental Rates and AI Industry

Rental rates for office buildings in Silicon Valley have weakened, with asking rental rates dropping to $5.10 per square foot per month by the end of December. The rise of artificial intelligence as a new industry has not been sufficient to counterbalance the extensive office vacancies in the region. As long as the technology sector, a primary driver of space demand in the Bay Area, remains in correction, lower office leasing activity is expected to persist.

In conclusion, the Bay Area, once the bustling hub of the tech industry, is now facing a reality check with soaring office vacancies. This shift reflects broader changes in the tech industry and poses challenges for the region’s real estate market. As the tech sector continues to recalibrate, the impact on office space demand in Silicon Valley and San Francisco is likely to be profound and enduring.

San Francisco Office Vacancies Hit Another Record!