Second-quarter data from Colliers International showed vacancy rates in downtown San Francisco continued to rise to record highs, but some neighborhoods fared better than others.
Total available space (a combination of direct rental space from landlords and sublease space) in the city center is currently over 31%, compared to just under 30% last quarter Derek Daniels of Colliers says asking rental prices will drop by about 26% by the second quarter of 2022.Citywide asking rents are down 13% compared to Q1 and 20% below their pre-pandemic peak, but rents vary widely across buildings Bay Area Regional Research Director. Direct-lease asking prices for Class A buildings are closer to $80 per square foot, compared to $63 for Class B buildings and $55 for Class C buildings.
“The rent gap between high-end and low-rise office space has probably never been wider,” he said by email.
Particle factor
The data also showed that some neighborhoods lost far more tenants than others.In the second quarter, the South Financial District added 1 million square feet of new available office space, accounting for almost half of the total negative absorption space in the city center, mainly due to mass defection Funding from big tech and financial firms, as well as consolidation and “sizing,” Daniels said.
Daniels said some companies have moved to just a few blocks north of the Financial District and Jackson Square, areas that don’t have the same safety concerns as the south side of the market and have the community amenities and smaller office sizes companies want.
“Jackson Square and the North Financial District mostly cater to ‘smaller’ tenants,” he said. “As Big Tech’s ‘space race’ to big neighborhoods pauses, deal activity is focused on smaller tenants.”
Jackson Square was a particular bright spot, absorbing more than 46,000 square feet of space in the second quarter, the largest of any downtown neighborhood. It also has one of the lowest availability rates at 22.5%.
“Jackson Square is well-equipped with some of the best restaurants in San Francisco,” Daniels said. “It’s considered clean and safe, it has access to residential areas and parks, and it has some of the most exclusive and high-quality office space in the city.”
Tourists are scarce
SoMa and Yerba Buena continue to have the highest vacancy rates in the city, with SoMa at more than 40 percent and Yerba Buena at more than 50 percent.
Yerba Buena’s struggles partly because of its proximity to the city High-profile retail closuresand the untimely delivery of an office building in a 5M development so far during the pandemic Attracted only one tenant.The region also relies on convention traffic at the Moscone Center, which dramatically drop Since the epidemic.
“Yerba Buena needs people: tourists, foot traffic and crowded meetings,” Daniels said. “The area needs open retail stores and safe, clean streets.”
He described SoMa as “arguably the first area in San Francisco that was negatively impacted early in the pandemic by companies shifting to remote work.” The vacancies come from big companies’ “craving for quality,” the trophy buildings that lead them to the Financial District, and outright remoteness. small technology companies. Daniels said the market needs a resurgence in venture capital investment and a boost from tech companies returning to offices. If that happens, “central SoMa will be the epicenter of new development,” he added.
