San Francisco’s Commercial Vacancy Rate Higher Than Ever

A person sleeps in front of a vacant retail space on Market Street in San Francisco on Nov. 13, 2023. Jason Henry/AFP via Getty Images

Businesses continued to vacate San Francisco office buildings at an increasing rate through the end of the year, according to preliminary commercial vacancy rate data released by CBRE Group, the world’s largest commercial real estate services and investment firm.

CBRE expects office vacancies in San Francisco will reach a new record of nearly 36 percent by the end of the fourth quarter on Dec. 31—a two-percent increase compared to the third-quarter rate of 34 percent at the end of September.

The fourth quarter includes any transactions made from October to the end of December.

This leaves about 6.7 million square feet of commercial space unoccupied in the city, CBRE reported.

Leasing income also declined each quarter in 2023, the company said. In the last three months, the annual rental income declined by about 2.5 percent compared to July, August, and September. It was also a 7.7 percent decrease compared to a year ago, the company said.

Vacancies grew during the last three months of the year, because several large subleases were put on the market and some space was relinquished by tenants, according to Colin Yasukochi, CBRE’s executive director of tech insights.

Tech companies, including Google, Amazon, and other major companies with offices in the city, struggled this year, laying off thousands amid recession fears and an economic slowdown.

Nearly 1,200 tech companies laid off about 262,000 employees this year, according to layoffs.fyi, a website that tracks tech startup job losses.

However, the industry made up for some of those losses with the booming artificial intelligence sector.

“Artificial intelligence [AI] companies continue to be a driver of demand in San Francisco,” Mr. Yasukochi said in a statement provided to The Epoch Times.

In 2023, the AI industry accounted for nearly 30 percent of total leasing activity, according to CBRE.

“This sector will likely be a leading demand creator in the future as its growth accelerates and spawns new businesses,” Mr. Yasukochi said.

Retail chains also walked away from leases and closed stores this year in the city, blaming rising crime and drug use.

In August, Westfield Mall gave up its San Francisco location to lenders after its anchor store Nordstrom closed.

Other major retailers to close locations included Walgreens, Amazon Go, Anthropologie, Whole Foods Market, Target, Starbucks, and CVS.

Looking ahead, CBRE said it expects commercial vacancies to rise again during the first half of 2024, with a moderate drop in lease rates, before starting to improve during the rest of the year.

“The office market should stabilize and begin recovery as economic conditions improve and interest rates decline during the second half of 2024,” Mr. Yasukochi said.