One-Third of San Francisco Offices Now Available for Lease

Nearly one-third of the all of the office space in San Francisco is now available for lease as a wave of downsized office footprints by companies who have embraced remote work is being exacerbated by a growing tide of tech company layoffs.

According to a report from Savills, the office availability rate in San Francisco notched a new all-time high of 32.1% in the fourth quarter, up from 28.9% in Q3. Availability of sublease space increased to 8.2M SF, up from 7.7M SF in Q3.

“Persistent uncertainty over the economy, the widespread adoption of the hybrid workplace, slow return to office utilization, and an ongoing correction in the technology sector has shown that lower office space demand might be the new normal going into 2023,” Savills’ report said.

“As a result, expect highly tenant-favorable office market conditions to remain for the foreseeable future as record-high availability levels are forecasted to continue to increase even if local employers attempt to get their employees back into the office [this] year,” the report said.

Gap became the latest San Francisco-based company to join the parade of firms downsizing their footprint. According to a report in the San Francisco Business Times, the clothing retailer is listing for lease or sale its five-story building at 1 Harrison Street in the Rincon Hill section of the city.

Gap bought the building in 1999 for $45M. The building serves as the HQ for the company’s Athleta brand of women’s activewear.

In an ominous sign of the shape of things to come this year, Salesforce, which listed for sublease 412K SF last summer in one of its two namesake headquarters towers in San Francisco—where it is the largest private-sector employer—dropped the other shoe on Wednesday, announcing it will lay off 10% of its workforce, which totals an estimated 80,000.

The enterprise software giant hinted at more cuts to come—in its office footprint as well as its workforce—in a regulatory filing that said the company is undergoing a workforce restructuring it aims to complete by the end of fiscal 2024, to be accompanied by “real estate reductions” that will be completed by 2026.

The announcement comes on the heels of another harbinger of a deepening economic downturn: California’s state labor agency, known as the Employment Development Department (EDD), reported this week that in the fourth quarter 42 Bay Area tech and bioscience companies slashed their payrolls, initiating layoffs totaling at least 9,000 workers.