SF Office Market Sees Third Quarter Correction

SAN FRANCISCO-This city’s office market, having established itself as the premier market in the nation in the second quarter, experienced a slight correction in the ensuing three months, according to a new third quarter report issued by CB Richard Ellis.

The vacancy rate increased for the first time in 18 months, and space absorption was negative for the first time in two years, according to the report. Despite that, world-class rents continue to be asked and paid in core submarkets such as the Rincon and Financial districts, where rates have surpassed the $80 mark for new class A space, with $100/sf deals being made for the top floors of the best addresses.

Class B and C space, which experienced a slight increase in rents as class A vacancies hovered around 1%, saw those rates come back down as more class A space became available as tenants who had leased for growth, began subleasing space for profit. In March, subleases accounted for 6% of all available space. Now, it accounts for more than 20% of all available space.