Office vacancy rates in the city rose to new heights in the fourth quarter of 2023, according to new preliminary data from commercial real estate firm CBRE. The vacancy rate rose to 35.9%, slightly up from 34% in the previous quarter. This equates to an additional 1.4 million square feet of occupancy loss. This is equivalent to completely emptying Salesforce Tower.
A total of 6.7 million square feet of office space came on the market in 2023, the second worst year since 2020. Much of the increase was due to large amounts of sublease space brought to market and lease expirations.
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However, rent demands for office space are still not coming down as quickly. Interest rates in the past quarter were down just 2.5% compared to the third quarter of this year.
Colin Yasukochi, executive director of CBRE’s Tech Insights Center, said the market probably hasn’t reached its bottom yet either. He expected vacancy rates to continue rising through at least the first half of 2024, according to a statement emailed to SFGATE. He also predicted that rents would continue to decline moderately into the second half of this year.
“The office market should stabilize and begin to recover as economic conditions improve and interest rates decline in the second half of 2024,” he told SFGATE in an emailed statement.
Artificial intelligence companies remain a hot topic in the office market. The technology sector accounted for 28% of all leasing activity in 2023, and Yasukochi expected this trend to continue next year.
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Meanwhile, recent sales in the downtown commercial real estate market suggest things may be looking up. The 14-storey tower at 115 Sansome Street recently sold for $35 million after a bidding war, industry sources told The Real Deal. While this is significantly lower than its 2016 sales of $83 million, it is still 40% higher than its market price of $25 million.