MARKET DRIVERS
OFFICE vacancy rose slightly in the second quarter to 18.6% across all class types. Sublease vacancy stood at 5.8%, compared to 2.9% in Q2 2020.
DIRECT asking lease rates have gradually fallen since the COVID-19 pandemic, reporting an average of $62.53/SF full service. Compared to a year ago, rates have decreased 11%. Class A rates fared better, ending Q2 2021 with an average rate of $72.30/SF full service.
SAN FRANCISCO office leasing activity stood at 1.34 million SF at the end of the second quarter. Total Class A lease activity reached 555,538 SF by quarter-end, with sublease activity reaching 378,222 SF.
THE only office delivery in Q2 2021 was the arrival of Uber’s HQ project (1.02 million SF) in the Mission Bay/China Basin submarket. However, 1.80 million SF of under construction space remains in the market, with several projects scheduled to be completed in 2021, including Hearst’s 5M project at 415 Natoma St., which is anticipated to deliver 640,000 SF of prime Class A space in the Yerba Buena submarket in late 2021.
ECONOMIC REVIEW
LAST year, the COVID-19 pandemic halted the San Francisco economy, forcing business closures, company layoffs, and remote working. However, on June 15, 2021, San Francisco reopened all businesses and activities, as the state of California fully reopened its economy. With high rates of vaccination in the city and steady job growth, there is optimism that the San Francisco economy will improve in 2021.
SAN FRANCISCO unemployment dropped slightly to a rate of 5.1%, while California unemployment fell to 7.5%.
NEAR-TERM OUTLOOK
OFFICE tour activity is on the rise in San Francisco, with many office tenants continuing to consider plug & play subleases in the market, which remain plentiful.
WITH increased numbers of vaccinated individuals, some companies are more comfortable planning a 2021 return into the office, causing several subleases to be retracted from the market.
MANY tenants are focusing on finding the right balance with a “hybrid” work model, considering productivity levels among its employees, as well as current and future office space needs.