Google to Lease 300K SF Office Building in San Francisco
As office vacancies continue to climb in SF, the lease is the largest in the city since the pandemic began.
Google has given a huge shot in the arm to San Francisco’s office market, which has been struggling to keep its head above water as other tech companies downsize footprints and opt for remote work.
The Mountain View, CA-based search engine giant will be leasing the 300,000K SF 510 Townsend Street building, which previously served as the global HQ of payment processing company Stripe.
The building has been listed for sublease since October of 2020, according to a report in The San Francisco Business Times.
The 7-story, Class A building at 510 Townsend, which Google will lease in its entirety, is owned by Ascendas Real Estate Investment Trust, which bought the building in 2020 along with 505 Brannan Street for $560M.
Office Leasing volumes showed signs of a rebound, but vacancies continued to climb in San Francisco during Q2 2022, according to JLL’s new report for the market.
Office leasing volume ended the quarter at about 1.7M SF, about 400K SF more than in Q1, but still well below pre-pandemic levels. Total availability in the market increased to 23.5M, with total vacancy growing to 22.4%, of which nearly 6M SF is sublease vacancy. Year-to-date net absorption is -700K SF.
“The economic headwinds faced by technology companies resulted in some firms readjusting their office plans by giving up space or downsizing,” JLL’s report said, noting that large tenants including JPMorgan, Intel and Curology chose to either work remotely or consider a hybrid strategy.
Average office asking rents in San Francisco dropped slightly in Q2 $79.18 per SF, while the average rental asking price for subleased space was $62.87.
JLL said the San Francisco office market has continued to see a flight to quality, with Trophy assets seeing lower vacancy rates and effective rents as high as $106 per SF.
The South of Market (SoMa) district where the 510 Townsend building is struggling with a Class A office vacancy rate of nearly 46%. The YTD total net absorption for the SoMa district is -141K SF, according to JLL.
Prior to Google’s deal to lease 510 Townsend, the largest lease in the SoMa submarket was SAP’s agreement to sublease 28K SF at 135 Townsend.
JLL’s Q2 report projected that the San Francisco market will remain a “tenant favorable” environment, noting that more than 2M SF of subleases will expires through the end of 2023 and many more may hit the market throughout the rest of this year.
According to the latest report from Kastle’s 10-city office occupancy report, based on a survey of entry-card swipes, occupancy levels in San Francisco are hovering at around 35%.