Office Vacancy Ticks Up Again in San Francisco
Vacancy rate approaches 34% as Q3 absorption is minus 2M SF.
The green shoots of good news popping up in San Francisco—where the generative AI boom is fueling a surge in tenant tours—won’t be reflected in Q3 office market reports.
The quarterly measurements in this case are telling us that the road to recovery for San Francisco’s 88M SF office market will be a long one.
The vacancy rate ticked up to nearly 34% in the third quarter, a 26% increase over Q3 2022, while office availability, which includes all space for lease, vacant or not, reached 37.5%, according to preliminary data from CBRE reported by the San Francisco Business Times.
Negative net absorption in the third quarter totaled minus 2M SF, CBRE’s preliminary numbers show.
VTS, which tracks demand by measuring tenants touring properties and looking for space in key US markets, has reported a spike in the number of businesses who are touring available space and negotiation leases in San Francisco.
The volume of tenants in the market is up 10% year-over-year and 32% higher than the end of 2022; the volume of square footage being toured is up 49% since the end of 2022, according to VTS data.
AI-driven demand for space is fueling the increase in tenant tours. Earlier this month, generative AI startup Anthropic agreed to sublease Slack’s 230K SF downtown headquarters.
San Francisco-based Salesforce owns Slack, which is a major investor in bot-maker Anthropic. (This week, Anthropic announced a $4B investment from Amazon.)
JLL has mapped more than 80 AI companies that currently are operating in San Francisco.
While most are located downtown, about two dozen companies have located near the intersection of the Mission, Potrero Hill, Showplace Square and West SoMa, which is becoming known as “Area AI.”
ChatGPT pioneer OpenAI is headquartered at 3180 18th Street in the heart of the Mission District. OpenAI, which currently has about 500 employees working out of two offices in the Mission District, has told city officials it will be growing soon to up to 2,000 workers and expects its office footprint to grow to 500K SF.