The equivalent of more than 20 Salesforce Towers worth of office space is currently vacant in San Francisco and the record-breaking number is only expected to grow in the new year, according to preliminary data from real estate firm CBRE.
More than a third of the city’s total office space—35.9%—is currently empty in the fourth quarter, a rise of nearly two percentage points compared to the previous three months. That proportion amounts to more than 31.5 million square feet of vacant space.
Salesforce Tower, the city’s tallest office high-rise, has 1.4 million square feet of rentable space, meaning the vacant space on the market is equal to more than 22 towers.
Office vacancy rates in San Francisco hit all-time highs during the pandemic and have continued to break records. The swath of space on the market is particularly striking when compared to the sub-5% vacancies seen in the city before the pandemic. San Francisco has experienced the sharpest rise in vacancy rates of any major office market in the country.
The vacancy challenges are connected to a broader decline in the market values of office properties in San Francisco, which has meant lower tax revenues and a growing municipal budget crunch while leaving some bargains for opportunistic private investors.
A handful of leases expired and several large subleases were placed back on the market during the fourth quarter. Negative net absorption—a real estate term meaning loss of occupancy of office space—was at -6.7 million square feet for 2023, the highest number seen since 2020.
Leasing activity did pick up early in the fourth quarter, with major deals like OpenAI snapping up nearly a half-million square feet of space at Uber’s Mission Bay headquarters. AI companies continued to drive leasing demand, accounting for around 28% of total leasing activity last year.
However, experts say the idea of AI as a savior for the city’s struggling office market is a long shot, particularly as AI companies generally try to limit headcount via technology.
But even with those tailwinds, there are some signs of light at the end of the tunnel.
Colin Yasukochi, executive director of CBRE’s Tech Insights Center, believes vacancy rates will likely continue to rise in the first half of 2024 before topping out and stabilizing in the second half.
That provides a positive signal for the city’s real estate market, particularly paired with indications that the federal government will cut interest rates next year.