Signs of green shoots
As technology companies rapidly adapted to remote work and quality-of-life issues increased dramatically, office vacancy has soared to new highs. Businesses are expected to continue shedding space under hybrid workplace strategies, driving vacancy higher and rental rates lower. However, San Francisco’s office market is showing the first signs of green shoots since the onset of the pandemic. Office sale transactions are slowly resuming and an uptick in leasing activity is being driven by AI companies and professional service firms.
“San Francisco’s beleaguered office market, the hardest hit of any in the U.S. since 2020, is beginning to display flickers of life.” Wall Street Journal (September 2023)
Key take-aways from the article:
- Sales of San Francisco office buildings at distressed prices are slowly materializing and are likely to continue
- The new sales are helping to reset office rents, which are now falling to more competitive levels.
- Tenant requirements have risen from 2.5 million square feet in January to 4.5 million square feet in September.
- Rents are likely to fall further and the city's office vacancy rate is still at a record high and likely to climb higher as businesses keep shedding space under hybrid workplace strategies.
- Investors appear ready to buy office buildings at steeply discounted prices, believing that the market will eventually recover.
