San Francisco Office Leasing Is On a Roll

The San Francisco office market is on a winning streak. For the second consecutive quarter since the pandemic started, office leasing volume has exceeded 1 million square feet. In the third quarter, 2 million square feet was leased in the market, a 74% increase over the second quarter when leasing volume also surpassed 1 million square feet, according to research from Savills

The North and South Financial Districts saw the most leasing activity, accounting for 1.3 million square feet of leasing activity in the third quarter. Large companies were the most active in signing new leases, and six out of 10 leases were for a new location. Savills notes that Charles Schwab renewed its lease for the entire 43,000-square-foot building at 100 Post; Yelp signed a sublease for 53,000 square feet at 350 Mission Street; Waymo subleased nearly 50,000 square feet at 555 Market Street, Uber’s former space; and Pinterest signed the largest lease of the quarter when it renewed its 85,0000-square-foot lease at 651 Brannan Street.

The leases by these major companies are encouraging, considering that remote work policies are still in effect and many companies have delayed plans to return to the office due to the Delta variant. This could be sign that offices are going to be a part of future workplace strategy.

As a result of the leasing activity, the vacancy rate fell 10 basis points to 26.2%. The class-A vacancy rate also fell 10 basis points to 23.9%. The rate is still well above the 17.7% vacancy rate from the third quarter 2020. In addition, asking rents fell .3% to $72.79. Class-A rents actually increased to $75.98, up .7% from the previous quarter. However, they are still well below the $79.55 class-A rents a year ago.

The second quarter was the first time since the start of the pandemic that the office market showed signs of life. Office leasing activity totaled 1.1 million square feet, more than twice the previous quarter’s leasing activity, according to a market report from Savills. More than half—59%—of the leasing activity was for new locations, and 61.5% of the leases were signed by tech companies.

Despite the activity, research from Avison Young predicts that the recovery won’t really begin until 2022 with the expectation that the office vacancy rate will remain unchanged through the end of the year.