San Francisco Office Vacancy Rises Through Q2

SAN FRANCISCO-The San Francisco office market saw vacancy, rental rates, absorption and leasing activity all worsen over the second quarter, according to the latest report from Colliers International. Vacancy now stands at 17.4%, up from 16.8% in the first quarter, according to the report.

“With the current state of deteriorated market fundamentals, a substantial improvement in rental rates appears years out,” says Colliers Research Director Brad Van Blois. “The freefall in rents over the past two-and-a-half years is astonishing, but when analyzing what’s transpired over the past four quarters the picture doesn’t appear as bad as it might seem. There are two stories being played out that must be viewed separately: direct rents are stabilizing while sublease rents continue to plummet.”

Despite 10 million sf of vacant space, office landlords have been holding firm on asking rental rates, according to the report. The lure for tenants to move to class A buildings during the market downturn remains very prevalent and has kept direct rental rates in check, says Van Blois. Class A Financial District direct rents were virtually unchanged in one year’s time, from $32.92 at third quarter 2002 to $32.89 at the end of last month. Direct space in class B buildings has firmed up as well, according to the report, as the majority of lease transactions during the second quarter were done at rates between $21 and $24 per sf per year.