San Francisco's Office Vacancy Climbs Again, But Leasing Activity Is Gaining Ground

San Francisco office vacancy jumped to its highest rate ever in the third quarter in spite of strong leasing activity.

Preliminary Q3 figures from CBRE put the city’s vacancy rate at 37.3%, an increase of half a percent from Q2 and a 3.3% increase over Q3 2023. 

“One large block of space was unexpectedly vacated in Q3,” resulting in the uptick, a CBRE spokesperson told Bisnow.

The spokesperson specified the space was in 1355 Market St. That address is where X, formerly Twitter, abruptly vacated 458K SF in Q3.

By the end of Q3, CBRE projects that leasing activity will equal 1.4M SF, bringing the number to 5M SF through the first nine months, putting “the year on pace for the highest total since 2019.”

“The market is very close to that point presently with AI companies leading net new office space demand,” Colin Yasukochi, executive director of CBRE’s tech insights center, said in an email. “Meaningful and consistent decline in vacancy is likely to start by mid-2025.”

San Francisco will remain a tenants’ market as concessions continue to climb, but CBRE warns that the highest-quality spaces are starting to vanish. 

Current tenant demand and future net absorption potential remain high, CBRE’s spokesperson said. Right now, tenants are shopping for 6.7M SF, the third consecutive quarter above 6M SF.

But concession ratios for Class-A leases in San Francisco rose to 13.8% in 2024 compared to 10.8% in 2023, according to data and analytics firm CompStak.

“Tenants will still have many options and financial incentives to lease office space, although the best quality spaces and locations have already diminished,” Yasukochi said. 

San Francisco’s artificial intelligence firms remain active, and a spokesperson for CompStak said tech, advertising, media and information, or TAMI, tenants have fueled relocations, accounting for 43.7% of Bay Area moves. 

Major tenants like Google and Apple are facing renewal decisions for large leases expiring between the second half of 2024 and 2026, and their choices could significantly impact office demand, the CompStak spokesperson said. 

Employees at nontech AI firms are stepping out of their homes to work in office buildings across the city. While they’re not in-person five days a week, they have adapted to the hybrid model. 

Law firms have also been active in San Francisco.

According to an exclusive report by CompStak, law firm Orrick inked the most valuable lease in the city year-to-date: A 153K SF commitment at 405 Howard St. in the South Financial District valued at $170M.

Of all the leases signed in San Francisco during Q3, AI firms represented 15% of the activity — closing 59 leases totaling 722K SF — but that number is growing. 

Currently, 27 AI tenants are seeking 1.1M SF, or 16% of the total number of tenants in the office market, according to CBRE.

But office-using employment dropped across the board in the Bay Area since its post-Covid peak, CompStak reported. 

Information sector jobs plummeted 8.2%, while professional services employment fell 5%, CompStak data showed.