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San Francisco Is The U.S. City Most At Risk From Sublease Space, CBRE Says

San Francisco is the office market most at risk of seeing rising sublease space negatively impact rents, CBRE said Wednesday in its latest annual Tech-30 report.

Salesforce Tower next to 100 First St. in San Francisco

S.F. entered 2020 with its office market near all-time highs in rent and occupancy, but the coronavirus pandemic reversed years of gains in a couple of quarters as leasing activity fell to a near standstill and companies adjusted to remote work. Other leading tech markets identified in CBRE’s report have faced similar reversals of fortune, but the brokerage highlights San Francisco's case as the biggest risk to office market rents. 

"Few industries, if any, escape a pandemic unscathed, and tech isn’t an exception," CBRE Tech & Media Practice Group Managing Director Todd Husak said in a statement. "However, the tech industry and the office markets where they have a significant presence are proving resilient this year.¿"

CBRE identifies Silicon Valley as the tech market "most resilient and poised for growth," followed by Washington, D.C., and Vancouver. San Jose, in particular, has shown signs of continued investor and occupant interest, with big names like Blackstone and Google still staking claims in the city.

Other Silicon Valley submarkets have proved resilient as well. Google's hometown of Mountain View finished Q2 with an office vacancy rate of 3.2%, behind only Seattle's South Lake Union neighborhood for the country’s lowest tech submarket vacancy rate, CBRE said in its report.

San Francisco, though, has seen its amount of available office space double this year to 14.6M SF, or a total availability rate of 17.6%, with sublease space making up over 5M SF of the newly available space, according to CBRE. Its average asking office rent has fallen to $80.64 per SF, down 4.1% from Q2.

CBRE highlighted Sacramento as one of 10 tech markets to watch, alongside Las Vegas, Houston and others. California's capital city has been a popular, lower-cost destination for former Bay Area residents, and its office market remains near pre-pandemic levels.  

"The opportunities created by this downturn will spawn many tech startups, just as in previous downturns," said CBRE Tech Insights Center Executive Director Colin Yasukochi, who is based in San Francisco.