San Francisco Office Market Report

4th Quarter 2021

Posted In — Market Research | Market Report


THE SAN FRANCISCO OFFICE MARKET is steadily recovering. While 2020 had historically low leasing activity sitting at a total of 3.7M SF compared to 2019’s 11.1M SF, the office market seems to be on the right trajectory to get back to pre-pandemic levels, as 2021 consisted of 5.5M SF.

WHILE ACTIVITY seems to be picking up, total vacancy is still on the rise. Many employers are patiently (or impatiently) waiting to see how the COVID-19 pandemic unfolds. In early November, many companies were optimistic to return to the office only be set back by the newly discovered Omicron variant. Like what happened with the Delta variant—we are now in another holding pattern. Total vacancy is up 80 basis points quarter-over-quarter and 530 basis points year-over-year.

MUCH OF THE VACANCY in the office sector comes from Class B and C buildings, currently running 21.8% and 20.4% respectively. Class A buildings in premium submarkets have stayed strong with a much lower vacancy rate of 17%.

CBD SUBMARKETS such as South Financial District, and Showplace Square in San Francisco are having an uptick in touring activity, particularly for premium space with views. Tour activity for Class B buildings—especially in North Financial District and Union Square — still remains quite low.

SUBLEASE VACANCY for the fourth quarter decreased by 60 basis points (bps) compared to the third quarter. Overall, the 2021 San Francisco Office Market had a sublease vacancy rate of 4.4%– almost the same as 2020 at 4.3%. Subleasing activity consisted of almost 2M SF, comprising more than 35% of all leasing activity in 2021. The sublease market is approaching pre-pandemic levels, which indicates some level of demand, while direct leasing activity is trailing behind. The high demand for subleases is due to the uncertainty the new COVID-19 variants create for employers and the desire to keep terms short.


LIKE THE PREVIOUS QUARTER, many employers have delayed returning to the office full time and are trying to find the right balance of on-site, hybrid, and remote work models.

THE UNEMPLOYMENT RATE for San Francisco was 3.3% as of November 2021. This is 80 bps lower than September’s rate of 4.1%. San Francisco’s unemployment rate is currently much lower than California’s 6.9%, so our local labor market remains strong.


WHILE END OF YEAR TOURING ACTIVITY slowed due to the holidays, tenants seem eager to move forward with leasing discussions for early/mid 2022 occupancy. The office market began to show signs of growth throughout 2021 after an unprecedented 2020 caused by the pandemic. Near term outlook fares well for San Francisco’s office market moving into 2022 as leasing activity and sales volumes start growing closer to the heights we saw in 2019.

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