Office vacancies are on the rise as rates fall. This year has brought many turbulences, and the commercial real estate industry was not excused.
Direct and sublease vacancies in San Francisco have reached 8.3% in the third quarter. That is more than double than it was in the beginning of the year, while some of the city’s historically high rents continue to plummet, according to CBRE.
According to Costar the total available vacant space in SF is around 6.9 million square feet. That number includes sublease space that has been available on the market since the beginning of the pandemic, but it is not inclusive of the currently unoccupied space of companies hoping to return.
San Francisco’s available space makes up 17.6% of its 82.7 million square foot inventory, up from 13.9% in the prior quarter. This number includes all existing space that is marketed for lease, and the vacancy rates include only current vacant spaces.
According to Yasukochi, executive director of CBRE’s Tech Insights Center, since the beginning of dot com in the early 2000’s, the vacancy rate in SF was nearly double of what it is today. The city’s inventory of sublease space has hit new records as a result of the ongoing pandemic, reaching almost 6.7 million square feet in the third quarter of 2020 and putting strong pressure on asking rents, said Yasukochi.
Most likely, the reason for sublease space is coming from tech companies who were forced to cut back on their operation due to the COVID-19 pandemic, and Class B and Class C spaces are generally where those companies are located, said Yasukochi. The market is dominated by Class A space but a great proportion of that space is occupied by large tech companies and there have been significantly fewer leases by them.
According to the data CBRE released, San Francisco’s average asking rents for direct leases have fallen to $80.64% per square foot in the third quarter of 2020, from $84.06 psf from the prior quarter.
Since the pandemic, sublease rates have dropped off. Look at it this way – the current asking rate for a 20,000 sqft Class A sublease, at 100 Montgomery Street is $49 psf and we’re seeing rates in the mid-$30s psf in midmarket and Jackson Square.
Twitter listed their 100,000 square feet at 110th St. as available for sublease in September, while Stripe has enlisted CBRE to market their 300,00 square feet at 510 Townsend St for sublease.
In the market of residential real estate, things have also undergone great changes, statistically speaking. Listing activity has jumped another 70% in recent months and as a result there are now nearly 3 times as many apartments listed for rent in San Francisco that there were in the same period of 2019.
Major shifts have happened and the market has adjusted accordingly. We’re still to see what the vacancy rates will be like by the end of the year.