In the wake of the pandemic, San Francisco’s commercial real estate market faces an unprecedented crisis. The city’s office vacancy rate has hit a staggering 29.5%, the highest ever recorded, and shows no signs of stopping. This figure represents a sevenfold increase since the start of 2020 and dwarfs vacancy rates even during the Dot-com bubble, which never crossed 20%.
At the current pace, San Francisco is on track to see a 35%+ vacancy rate within the next year. This alarming trend has triggered a surge in subleasing efforts, with 7.2% of total office inventory now up for sublease compared to just 2.8% in 2019. Unfortunately, this issue is not unique to San Francisco, as other cities are experiencing similar downturns in their commercial real estate markets.
Thirteen companies alone account for 3.5 million square feet of vacant office space available for sublease, contributing to the 9.6 million square feet of office space currently up for sublease in the city. In total, San Francisco has over 30 million square feet of vacant office space. Sublease inventory now accounts for 10.1% of the total San Francisco office market, while direct lease availability stands at an alarming 23.7%.
The situation is expected to worsen, with an additional 4 million square feet of space becoming available in the city by the end of 2025. This figure matches the amount of vacant square footage added during the pandemic, further exacerbating the crisis.
Major tech companies like Salesforce have not been immune to the downturn. The company has over 700,000 square feet of office space available for sublease in San Francisco, all of which entered the market since the beginning of 2022 and remains vacant.
The severity of the issue has led some tech industry leaders to label San Francisco as a “ghost town.” Elon Musk recently suggested converting part of Twitter’s headquarters into a homeless shelter, given the low number of employees occupying the office. This proposal highlights the bleak reality of the city’s commercial real estate landscape.
A historical comparison of the size and vacancy of the San Francisco office market reveals that over 4.3 million square feet of space was added during the pandemic, with the Financial District suffering the most significant losses. As the crisis looms, $1.5 trillion of commercial real estate loans are set to mature by 2025, further aggravating the situation.
San Francisco’s vacant office space dilemma may not have an easy solution, and other cities are grappling with the same challenges. The long-term implications of these trends will undoubtedly shape the future of the commercial real estate industry, forcing businesses and investors to adapt to a new normal.