The office rental crisis in San Francisco

The San Francisco office rental market is going through a tough time. The vacancy rate reached a record high of 34.0% in the third quarter of 2023, up from around 24.8% in the first quarter of the same year. Net absorption is negative, meaning more office space is being vacated than is being rented. Additionally, the average direct request rate has decreased. These factors, combined with an increase in tenant demand that has reached its highest level in 3.5 years, could indicate a recession in the office rental market.

According to a CBRE study

-Renter demand reached a 3.5-year peak, but the vacancy rate continued to rise.

-Vacancy rate was 34.0%. SF net absorption was -1.85 million square feet.

-The current construction was 350 KSF.

-Total tenant demand in the market reached 5.2 million square feet at the end of the third quarter of 2023, an increase of 86% since the fourth quarter of 2022.

-The market vacancy rate ended the third quarter of 2023 at 34.0%, up 1.85 million square feet of negative net absorption.

-Market availability rate ended the quarter at 37.4%. Average direct inquiry rate decreased to $71.70 FSG per year, 2.6% lower than Q2 2023 and 6 .4% less than the third quarter of 2022.

-Total leasing activity was 981,000 square feet in the third quarter of 2023.

-Office employment in San Francisco stood at 346,500 in the third quarter of 2023, a slight decrease from the 347,500 reported in the second quarter of 2023.

-Six sales transactions were completed in the third quarter of 2023, including three buildings in the central business district that sold for less than a third of their pre-pandemic value.