Q3 2023 San Francisco Office Market Research
Heading towards the end of 2023, the cumulative impact of three years of weakening demand and 18 months of increasing interest rates is taking a toll on the San Francisco office market. However, the market is experiencing an uptick in activity, especially for requirements under 250,000 square feet. Currently, 79.2 percent of all requirements fall within this segment. Expect increased competition for smaller, high-quality space, as demand for this type of space remains strong resulting in an extremely competitive environment. These spaces can also command premium rents at elevated or equal to pre-2020 rates.
Many landlords are trying to justify high asking rents by pointing to the starting rents in lease comparables but for tenants it’s important to know the full picture and ask questions. How much free-rent and tenant improvement dollars did the landlord give? The answer is likely a lot – especially for longer term leases. On top of increasing concessions, year-over-year market average asking rents fell $5.72 per square foot. And, the average market vacancy rate continues to climb, reflecting a 6.5 percent increase year-over-year, up to 28.1 percent for the quarter.
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