Artificial intelligence is a huge boon to San Francisco real estate. But it wasn’t enough to make up for the broader struggles across the market.
A report released Monday by commercial real estate firm Cushman & Wakefield showed that San Francisco’s office vacancy rate reached a new record of 34.5% in the second quarter. This figure is higher than the 33.9% in the first quarter, the 28.1% in the same period last year, and the 5% before the outbreak.
Meanwhile, average asking rents fell to $68.27 per square foot this quarter, the lowest level since late 2015 and down from $72.90 a year earlier and a 2020 peak of $84.70.
San Francisco is facing a dual challenge bring people back Offices due to COVID-19 pandemic and slowdown in tech market massive layoffs The entire industry. Tech companies have laid off more than 530,000 employees since the start of 2022, according to the website Layoffs are for reference onlysignificantly reducing the scale of letter, Yuan, Amazon, Tesla, Microsoft and sales force.
The recent blow has been cushioned by a surge in generative artificial intelligence and the decision of fast-growing startups to open large offices in San Francisco.
OpenAI is the market leader with a private valuation of over $80 billion, declare Last October, it leased about 500,000 square feet of space in the Mission Bay neighborhood, the city’s largest office building lease since 2018. More space.
Also last year, OpenAI competitor Anthropic sublet Slack’s headquarters occupies 230,000 square feet. In May this year, Scale AI Sign a lease Reportedly 170,000 to 180,000 square feet Airbnb Office building.
“San Francisco is undoubtedly the epicenter of artificial intelligence, but artificial intelligence is not going to save the San Francisco commercial real estate market,” Sammons said. “I’ll help you.”
Sammons said that while well-capitalized AI startups are signing a lot of leases for new space, the larger trend is for technology companies, law firms and consulting firms to look to reduce their footprint as existing leases expire. area, reflecting a broad shift in mixed working.
Sammons added that in many cases, companies are looking to relocate to higher-quality space in more desirable areas of the city because prices have dropped and employers need to be close to restaurants and shops to bring employees back.
“The best quality trophy spaces continue to perform well as tenants want to be in the best locations, surrounded by the best amenities,” Sammons said.
Some of the city’s top employers, including Salesforce, Uber, visa and FuGuo bank, has brought employees back to the office for part of the week. This has helped the Financial District, where vacancy rates remained at 34.2% on the north side and 32.7% on the south side as of the end of the quarter. SoMa has always been a popular area for venture capital and new startups, but the vacancy rate is close to 50%.
SoMa is far from public transportation and also hurts greatly retail departure. Vacant office space in San Francisco totaled 29.6 million square feet this quarter, Cushman & Wakefield said.
The company said in a report that there were positive signs in the market, with absorption expected to improve in the second half of the year and office employment stabilizing after a sharp decline. But there appears to be more room for falling rents and rising vacancy rates, Sammons said. Uncertainty about the upcoming presidential election could be a factor in delaying new leases, he said.
“Sometimes, during major elections, tenants put off making decisions,” he said.
watch: San Francisco commercial real estate vacancy rate hits record high
