The number of dark offices in San Francisco could fall for the first time since the pandemic — but rise early next year as some tenants clear out their desks.
The city’s office vacancy rate could drop to 34.3 percent by the end of the year, from 34.5 percent in the third quarter, the San Francisco Business Times reported, citing figures from JLL.
Net absorption of offices grew by 320,000 square feet.
JLL predicts the market will sustain positive net absorption, with vacancy rising early next year before beginning to ebb again over the summer.
Tenants who signed large lease deals over the past year recently occupied their offices, contributing to the vacancy decrease this quarter, according to Alexander Quinn, senior director of Northern California research for JLL.
Among them was Adyen, which occupied 150,000 square feet after a sublease from Pinterest early this year; Scale AI, which subleased 180,000 square feet from Airbnb; and Visa, which opened its new global headquarters at Mission Rock.
The brokerage predicts vacancy will rise again in the first quarter with Google’s planned departure from One Market Plaza, JPMorgan’ Chase’s downsizing at 1 Front Street and X’s exit from its longtime headquarters at 1355 Market Street.
Outgoing tenants may drive up the vacancy rate, but the fluttering needle marks “a positive tell” in the market, the firm said.
Leases by artificial intelligence firms have served as a beacon for San Francisco’s office market over the past year, with AI tenants signing 72 leases for 1.1 million square feet of offices, according to JLL. Scale and OpenAI alone leased nearly 500,000 square feet.
The market could also benefit if a few of the startups behind the smaller leases begin to grow and require additional offices, Quinn said.
“The narrative around San Francisco has changed,” he told the Business Times. “The expectation of this AI economic revolution, and us being in the middle of it, has also led to other tenants and occupiers wanting to plant a flag in the city.”
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Though the vacancy rate remains at a historic high, it has inched up only slightly over the last year, according to JLL and other brokerages, suggesting the city is at or near peak vacancy.
CBRE reported an office vacancy of 36.9 percent last quarter, after initially pegging it at 37.3 percent.
— Dana Bartholomew
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