Bay Area office vacancies hit record highs, here's why:
Office vacancies hit all-time highs in the Bay Area's largest cities
A new report shows that office vacancies in the Bay Area's three largest cities has hit all-time highs. Ted Egan, the chief economist of both the city and county of San Francisco, joined us on 'The Nine' to talk about the city's vacancy rate, which has reached nearly 37%.
SAN FRANCISCO - Office space vacancies in the Bay Area’s largest cities have reached historic highs, according to a new report.
The analysis by real estate firm Cushman & Wakefield found that vacancies in San Francisco, where the market has been struggling since the Covid pandemic, has hit a new high of 34.5% in the second quarter, up more than 6% from a year ago.
The national rate was at 20.5%, an all-time record.
In the Oakland/East Bay region, vacancies spiked to 18.6%, up almost 3% from a year ago.
It was 17.2% in San Jose, and in the North Bay it was 13.3%.
Analysts said the commercial real estate market has continued to face challenges since the pandemic due to companies downsizing and a recent series of job cuts in the tech industry.
The increased practice of remote work also led to more empty office spaces.
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San Francisco Chief Economist Ted Egan speculated the market hasn't quite hit rock bottom yet, but he said there’s reason for optimism that a turnaround was on the horizon.
"The good news that we're seeing is leasing activity is picking up," Egan said. "People are renewing their leases-- existing tenants, mainly, some new tenants, and also people are interested. So people are looking around and kicking the tires for office space now."
The Cushman & Wakefield report also found that asking rents were also on the decline, so prospective tenants may be looking for a deal.
Figures showed that the average asking rent in San Francisco dropped to about $68 a square foot in the second quarter, the lowest in almost a decade and about $5 less per square foot compared to a year ago.
Other reasons for optimism, according to Egan, was that there were signs of a rebound in tech employment.
"We've had about two years of layoffs in tech and job declines there the last couple of months. We may have started to turn a corner," the economist said.
The high vacancy rate may put the city in position to re-imagine itself, especially with the boom of artificial intelligence and an ever-evolving tech industry.
Open AI, one of the world's largest artificial intelligence companies, announced last fall that it would lease some 500,000 square feet of office space in the city's Mission Bay neighborhood.
"The industry is very dynamic. We have a new range of AI startups, and who knows what the tech industry is going to look like in ten years and who the leading companies are," Egan said. "It does seem to be true, though, that the Bay Area, Silicon Valley and San Francisco are still the leader of tech in the country."