More than a third of San Francisco’s offices remain vacant, even as the artificial intelligence boom has boosted share prices for Silicon Valley-based tech giants, according to the report.
Real estate firm Cushman & Wakefield said vacancy rates for office space in San Francisco hit a record high of 34.5% in the second quarter, up from 33.9% in the first quarter.
This comes despite the city’s efforts to lure back tech workers who relocated during the COVID-19 pandemic to other areas with lower costs of living, lower taxes and lower crime.
The city’s office vacancy rate in the second quarter of last year was 28.1%. Before the COVID pandemic, office vacancy rate was just 5%. According to CNBC.
The dire state of office space in San Francisco has forced landlords to slash asking rents to their lowest levels in nearly a decade.
Average rents fell to $68.27 per square foot in the second quarter, the lowest since 2015, according to Cushman & Wakefield.
That’s down from $72.90 per square foot last year and $84.70 per square foot before the pandemic.
Earlier this year, commercial real estate firm CBRE predicted it could be years before the city’s office market fully recovers.
According to the company’s report, while overall vacancy rates are rising, the rate of increase has slowed slightly.
Downtown San Francisco has been successful in attracting artificial intelligence startups to set up office space in the area.
Last year, Anthropic, an Amazon-backed rival to ChatGPT developer OpenAI, subleased 230,000 square feet of office space that once served as Slack’s headquarters.
OpenAI, the world’s most valuable AI company, announced last fall that it would lease about 500,000 square feet of office space in San Francisco’s Mission Bay neighborhood, marking its largest office space lease in the city since 2018.
In May, Scale AI signed a deal to move into Airbnb’s office building, occupying approximately 180,000 square feet of space.
Despite the AI companies’ faith in San Francisco, they have so far been unable to save the city’s commercial real estate sector from its dire situation.
“San Francisco is certainly a hub for AI, but AI is not going to save the San Francisco commercial real estate market,” Robert Sammons, senior research director at Cushman & Wakefield, told CNBC.
“That helps.”
The Bay Area has long been the nation’s leading hub for tech companies, but the pandemic marked a turning point for the city.
At least 53 companies have relocated their headquarters from San Francisco and the Bay Area since 2020.
Some of the most prominent companies involved in the breach include electric car maker Tesla, cybersecurity firm McAfee, software giant Oracle, computer maker Hewlett-Packard and data analytics unicorn Palantir.
The adoption of remote and hybrid work arrangements has prompted other tech companies, including Meta, PayPal, Google parent Alphabet, Slack and Salesforce, to also downsize their offices in the city.
In San Francisco, several popular retail brands have also closed stores, including Nordstrom, Whole Foods, Old Navy and the Westfield San Francisco Center shopping mall.
