San Francisco’s office vacancy remains stubbornly high, despite signs of a gradual recovery.
The vacancy rate stood at 36.9 percent in the third quarter ending in September, continuing a steady rise since the pandemic — while experts expect it to peak next year despite a growing trend of workers returning to the office, the San Francisco Business Times reported.
Ted Egan, chief economist for San Francisco, said the city’s rebound from the pandemic nearly five years ago has been sluggish, affected by rising interest rates and the challenges facing key industries like tech and construction.
“The city is in a slow process of recovery,” Egan told the Business Times. “The interest rate increases that we’ve seen in the past couple of years hit the city harder than most other places because they’ve affected tech and construction, which are two of the biggest industries for San Francisco.
“That’s why most of our numbers related to economic performance are down.”
Richie Serna, CEO of the fintech company Finix, is actively seeking new offices in Downtown, even though his current headquarters at 631 Howard Street has faced recurring vandalism and attempted burglaries.
Finix’s Richie Serna (Linkedin)
While Serna is optimistic about the city’s future, he acknowledges that Downtown San Francisco is struggling to recover from the effects of the pandemic.
“We are incredibly bullish on San Francisco,” Serna told the Business Times. “That said, it’s very clear that Downtown still hasn’t bounced back.”
However, there are positive signs for the city’s office market, with growing demand from tech companies, particularly artificial intelligence startups.
San Francisco and Silicon Valley have become leading markets for AI leasing, with firms in the sector having absorbed 3.9 million square feet in San Francisco since 2019. Experts predict this year will see the highest leasing activity from tech companies in five years, signaling a potential shift in the market.
In addition, companies touring office space in San Francisco sought 2.7 million square feet between August and October, according to real estate software company VTS.
A surge in tech leasing in the third quarter could spur large institutional investors to return to investing in Downtown office properties, which in recent years has been dominated by local investors.
Despite these optimistic trends, the road to recovery remains challenging, according to the Business Times.
The city is still grappling with a damaged reputation, especially following the rise of retail theft and crime after the pandemic.
However, the passage of Prop. 36, which reclassifies certain crimes as felonies, and the election of a new mayor, Daniel Lurie, are seen as potential catalysts for improvement in public safety and the overall business environment.
Meanwhile, businesses like Finix, which require employees to work in the office, may help spur recovery in the city’s Downtown core.
Serna’s company mandates four days a week in the office to foster collaboration and innovation. As more companies, including major tech giants like Amazon.com and Salesforce, implement similar policies, the return-to-office trend is expected to help revitalize Downtown buildings.
— Dana Bartholomew
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