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Layoffs, Remote Work Push San Francisco Class-A Office Vacancy To New Record

Class-A office vacancy increased for the 10th consecutive quarter in San Francisco as more than a third of the city's office buildings remain empty. The vacancies, brought on by layoffs and hybrid work, are expected to remain elevated through the end of the year.

The vacancy rate for the city's highest-quality offices increased to a record-high 34.5% for a total of 29.6M SF in the second quarter, a 6.4% year-over-year rise, according to Cushman & Wakefield.

“It is going to take some time for the market to rightsize and coalesce before we see a decline in vacancy,” Cushman & Wakefield Senior Research Director Robert Sammons said. “In terms of our own forecasts, we're looking at 2025 before that decline really begins.”

The San Francisco area recorded 4,000 layoffs in April, bringing the annual total to 11,000, according to C&W's Q2 report. Tesla clocked the most layoffs with about 1,700 in the quarter.

San Francisco's Class-A office vacancy rose to 34.5% in Q2.

According to the Bureau of Labor Statistics, employment in the San Francisco metro area’s information sector, which includes tech, has declined nearly 10% since May 2023.’s monthly data shows that San Francisco office workers are coming into the office the least of any of the top 10 metros, with visits down 49.2% in June compared to the same month in 2019.

Average Class-A asking rents remained stable quarter-over-quarter at about $73 per SF. Asking rents have plummeted 16.7% from their record highs of approximately $87.50 in Q1 2020, according to the report.

Asking rents overall continue to decline, except in the top tier of the market, Sammons said.   

On the effective rent side of the equation, where deals are being signed, Sammons expects landlords to continue offering months of free rent, larger tenant allowances and other incentives throughout the year.

“But we’ve got over 5.5M SF of tenants looking for space in San Francisco right now. Is that down from the prepandemic days? Yes. But it's been steadily climbing over the past few quarters,” Sammons said. “And it’s not just tech tenants. It's law firms and professional services companies.”

But those tenants looking for an office routinely ask for less space than they did before the pandemic. When leases expire and renew, companies tell landlords they don’t need 50K SF, for instance, they need 35K SF or 40K SF, Sammons said. 

Leasing activity has picked up among artificial intelligence and professional services firms, according to Sammons. 

The AI sector has been strong, Sammons said.

“Nearly every AI lease that has been signed features positive net absorption, which is a great, positive force for the market,” he said. 

Companies like Unlearn.AIScale AI and ChatGPT developer OpenAI are among those that have signed office leases in the Bay Area in the last year.

But to bring down vacancies, other types of companies will have to start taking space, Sammons said.

“We’ve seen a little bit of that in the second quarter, professional services firms, law firms and other types of tech companies looking at space. But in general, they are taking less space than they would have prepandemic because of the new hybrid work format,” Sammons said. 

There has been a growing desire among tenants to cluster near restaurants, nightlife and other major employers, much like advanced manufacturing companies cluster around one another in Fremont or Silicon Valley. 

As a result, downtown San Francisco has rebounded more quickly than markets such as SoMa, Sammons said. SoMa had a vacancy rate of nearly 50% in Q2, Cushman & Wakefield reported. Meanwhile, downtown San Francisco offices were 32.7% vacant in the South Financial District and 34.2% in the North Financial District. 

Over the next two quarters, high volumes of venture capital funding in the Bay Area will bode well for the office leasing market, Sammons said. At $31B so far this year, VC funding in the Bay Area is substantially higher than all other major metro markets in North America. The only other metro area to come close in the first half of 2024 was New York at $13.3B, according to Cushman & Wakefield.

“There is just a heck of a lot of money churning through the city,” Sammons said.

And the employment scene is improving, or at least not declining at the rate seen in the last couple of years.

“At least over the past couple of months, layoffs have been slowing in the tech sector. AI companies are hiring, thanks to this VC funding,” Sammons said. “And AI companies generally like to bring their people in five days a week because they're very security-conscious and are creating something new and at the forefront that will affect us going forward forever.”