San Francisco’s office market is looking emptier than ever before. New data from real estate firm CBRE shows last quarter’s vacancy rate of 36.6% moved up to a record high 37% in the second quarter of 2024—the highest of any major market in the country.
But the incremental increases of just .4% between the two quarters indicates the market is beginning to stabilize, according to CBRE experts. In comparison, in 2023 there was a 6.8% increase between the first quarter’s (24.8%) and the second quarter’s (31.6%) office vacancy rate.
“We’re finally starting to see signs that the office market is stabilizing where the amount of vacant space coming onto market has slowed down pretty significantly," said CBRE’s executive director of Tech Insights Center, Colin Yasukochi.
But the office market has been struggling for years and vacancy rates have been unticking quarter after quarter.
Yasukochi said despite the climb, another positive sign is the rising tenant demand of 6.9 million square feet— it is almost back to the 7 million square feet average demand of 2019. Driven by discounted rents and other concessions, more leases were completed this year than in the previous quarter, according to CBRE’s report.
“So the amount of space that tenants have signed leases for has increased by about 25% through the first half of this year compared to last year. So, we're expecting again to see more companies acquire office space for their employees this year than they did last year," Yasukochi said.
CBRE says AI companies are the driving force behind the demand. The top lease this past quarter was acquired by Scale AI, followed by the city of San Francisco, HR management company Rippling, and global law firms Orrick and Jones Day.
Average rents declined about 30 cents to $68.25 quarter-over-quarter.
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Yasukochi said the city is still always off from achieving net positive office absorption again, but they’re very optimistic about AI companies as a catalyst for growth in the future considering San Francisco is a leader in artificial intelligence.
CBRE’s report also revealed that San Francisco is still very oversupplied.
This is all part of a long process, that experts say, is going to take years for city vacancy rates to fall under double digits, as it was before the pandemic, when office vacancy rates were considered relatively healthy.
