Newly released first quarter reports show that conditions are continuing to deteriorate for San Francisco’s downtown office market. In the first quarter of 2023, office vacancy reached 29.5 percent, the highest number ever recorded, according to data from CBRE. The figure is significantly higher than vacancy rates posted during the early 2000s dot-com bust and a seven-fold increase since the same period in early 2020. While the numbers are grim on their own, real estate experts in the area expect the vacancy rate to get even higher, as leases come up for expiration over the next few years. There’s also a very real possibility that many building owners will hand back the keys to lenders. “We’ll have a turnover unlike anything in the history of commercial real estate in the next 12 to 18 months,” said Mark Ritchie, a broker with Ritchie Commercial.
San Francisco’s office market has struggled more than others over the last few years due to several factors, including the fact that the tenant base is heavily weighted toward tech companies, many of which have relocated their headquarters or have been downsizing their office footprints as remote work continues to be popular with workers. The city has also struggled to address its homelessness problem, and while overall crime rates are below pre-pandemic numbers, a number of high-profile crimes have grabbed headlines. Just last week, a well-known member of the tech industry who founded CashApp and was formerly the chief technology officer of Stripe was stabbed to death near the city’s downtown. While San Francisco Mayor London Breed has proposed changing zoning regulations in order to make it easier for office buildings to be converted to life science space, it’s looking like a lot more initiatives will be needed to bring more office tenants back downtown.
