The struggling office sector in San Francisco has ended 2024 with a surge in office leasing activity, a pause in the relentless rise of record-high vacancy rates and cautious optimism that a sustained recovery will develop by the middle of 2025.
Leasing activity jumped to more than 2.2M square feet in the fourth quarter, up from 1.7M in the previous quarter and the highest quarterly leasing volume since Q3 2019, a report from Savills showed.
According to preliminary figures from CBRE, the office vacancy rate in San Francisco ticked down to 36.7% in Q4 from its record high of 36.9% in the third quarter.
CBRE projects that the office leasing total for 2024 in San Francisco will come in at 7.6M square feet, up 20% from 2023 and the highest total since 12.7M square feet was leased in the city in the pre-pandemic year of 2019.
Colin Yasukochi, executive director of CBRE’s Tech Insights Center, is predicting that an office market recovery in San Francisco will get additional momentum in 2025.
However, he cautioned that the recovery will likely be “uneven and segmented” over the next several quarters, with the vacancy rate changing little overall or rising and falling, The San Francisco Examiner reported.
“This is part of the bottoming out process,” Yasukochi said, adding that the city will need “an extended period of growth” to restore the balance between supply and demand.
While 2025 is expected to herald the beginning of a rebound for San Francisco’s office market, the consensus among analysts is that it will take years for the market to stabilize and dig itself out of the deep trough it fell into when tech firms embraced remote work during the pandemic.
JLL is warning that office vacancies may rise again in San Francisco in the early months of 2025. The market still must absorb space to be added by large companies exiting leases, Alexander Quinn, senior director of Northern California research at JLL, told the Examiner.
Quinn is predicting that a more sustained turnaround in the city’s office market could emerge later this year, possibly in the second quarter.
Ride-hailing company Lyft inked a deal last month to renew its San Francisco headquarters lease at 185 Berry Street for another decade while cutting its footprint nearly in half.
Lyft, which moved into 185 Berry in 2016, had been leasing 335K square feet in the two-building complex, but in 2022 it began marketing 165K square feet of that space for sublease.
Under the new lease, Lyft will continue to occupy 170K SF at the China Basin location, while it gives up the 165K square feet of space, a lease that was scheduled to expire in August of this year.
Lyft has made a long-term commitment to keep its HQ in San Francisco. At the same time, it is seeking a $100M tax refund from the city. The firm claimed in a lawsuit it was overcharged for business taxes, alleging that the city mischaracterized its revenue from rides.
Newmark and McCarthy Cook currently are advertising about 326K square feet available for leasing at 185 Berry, an office campus that encompasses a total of 885K square feet, the San Francisco Business Times reported.
According to Savills, the office availability rate in San Francisco remained flat in Q4 at 36.6% as renewal deals dominated and large blocks such as X Corp.’s former HQ on Market Street remain on the market.
The overall average asking rental rate for office space in San Francisco decreased to $67.84 per square foot in Q4 from $68.22 per square foot in the third quarter.