Q4 2023: San Francisco Office Market Report

In 2023, the San Francisco office market continued to be shrouded in uncertainty. The year began with a decline in Venture Capital (VC) investments and stress in the regional banking sector. Employers tried various strategies to attract employees back-to-the- office, albeit with limited success. Similarly, landlords experimented with diverse tactics to boost leasing activity, with modest results. Moreover, the City still faces a persistent perception problem, despite hosting the high-profile APAC summit in November. However, given these challenges, there were some positive developments, particularly a surge in leasing activity from AI companies, signs of revival in capital market activities, and the Federal Reserve signaling potential interest rate cuts.

Annual net absorption was a staggering negative 9.76 million square feet. The vacancy rate climbed by 6.3 percent in 2023, reaching 29.3 percent, while asking rates decreased year-over-year by $3.98 to $70.97. Despite the overall lackluster leasing activity, the market recorded its highest levels of activity in the fourth quarter since the second quarter of 2022. This uptick was driven primarily by OpenAI and Anthropic, which took massive subleases in both Mission Bay and the South Financial District.