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Nearly a third of San Francisco's office space is available for lease, according to new data from Savills, highlighting the ongoing struggle for a market that three years ago was a juggernaut, commanding huge rents as companies clamored for space.
Office availability hit 32.1% in the fourth quarter, an increase from 26.1% in Q4 2021.
“When will we see the end of this? I don't think anyone knows," Savills Senior Director and Head of Office Research Michael Soto said. "Because there's a lot of different things going on with San Francisco, as you know, right now. You know, the market is in the middle of a tech correction."
Soto said that along with the continued tech industry pullback as the segment seeks to control costs, the stickiness of hybrid and remote work strategies is leading to a surplus of sublease space.
“In terms of the office market, LA is probably about three times bigger than San Francisco, yet San Francisco has almost as much sublease space as LA,” he said.
“It's not all short-term expirations," Soto said. "There are companies that are leasing into the 2030s that have put space on the market for sublease hoping that someone will just sublease that space and they can get it off there and these companies can get the space off their books.”
One of the city’s most notable office tenants, Salesforce Inc., announced it would dismiss 10% of its workforce, along with reducing its office footprint, though it didn’t specify where the reductions would happen. The company occupies 875K SF in the Boston Properties-owned Salesforce Tower with a lease that runs through 2031. The company placed its Salesforce West location up for sublease in 2022.
“The issue isn’t oversupply,” Soto said. “It's underdemand.”
Amid the growing surplus of office space in the city, there has been an increased call to convert some of that existing space from office to other uses, such as life sciences or hotels, but Soto said cost hurdles could serve as a continued deterrent for developers.
“They're looking at a property, they're like, 'OK, if we have to buy it for that and it's still going to cost us a sky-high amount to convert it and then we need to lease it up, that project just doesn't pencil because we might not be able to get the rents in order to get that project to be feasible,'” Soto said.
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