In recent years, San Francisco’s office market set new pricing records as rents soared amid seemingly unstoppable tech demand. But as the coronavirus shuttered most workplaces, new leasing activity plunged to a record low.
Companies signed new leases totaling 266,000 square feet in the second quarter, according to brokerage Cushman Wakefield, the lowest level based on data going back to the 1990s. The previous low of 556,640 square feet was in the first quarter of 2009 during the Great Recession. The data does not include renewals.
Software company Airtable signed the biggest new lease of the quarter, totaling 48,800 square feet at 155 Fifth St. Leasing volume was just 13% of leasing in the second quarter of 2019, which totaled 2.1 million square feet.
The plunge in activity reflects great uncertainty around the future of workplaces and demand from companies, said Robert Sammons, Cushman Wakefield’s senior director of Bay Area research. San Francisco allowed some workers to return last month, but many major employers such as Salesforce haven’t decided when to reopen offices. Businesses are now mandated to have safety measures like masks and 6-foot separations among employees.
The city’s office market has also been battered by mass layoffs, with the unemployment rate surging to 12.6% in June, according to state data, up from a record low of 1.8% last fall. San Francisco’s office vacancy rate rose to 9.9% from 5.5% in the second quarter of last year.
Though layoffs have been predominantly in the food, retail and travel sectors, thousands of workers have been laid off at major tech firms, including Airbnb, Credit Karma, Uber and Yelp. All four of those firms are currently listing available sublease space.
“There’s very little demand out there,” said Colin Yasukochi, executive director of brokerage CBRE’s Tech Insights Center. “There’s weakness in the market, but whether that weakness is mild or severe remains to be seen.”
Unlike the housing market, the office market has yet to see asking rents drop. June’s asking rent of $83.11 per square foot annually was up slightly from the first quarter, according to Cushman Wakefield. Sammons said it can take months for pricing to catch up to the new reality.
Activity was also slow in Silicon Valley and the East Bay, according to preliminary data, but asking rents have not fallen substantially, he said.
In comparison to the devastation in the retail and hotel sectors, the office market has been more resilient.
“I don’t think it’s all doom and gloom,” Sammons said.
Major tech companies like Google and Facebook continue to pursue major expansions in Silicon Valley. Google was considering a major lease at the Pier 70 project prior to the pandemic, according to numerous real estate sources, but it’s unclear if the company will move forward. Last week, Google delayed the partial reopening of its U.S. offices to at least Sept. 7.
Demand for lab space from biotech companies is still strong, and office projects could seek to become lab space instead, Sammons said. Gilead, which is developing the coronavirus treatment remdesivir, is headquartered in Foster City.
Boston Properties, San Francisco’s biggest office landlord and owner of Salesforce Tower, said it had collected 98% of its rent payments in June across the country.
It also signed a major lease of 400,000 square feet with Microsoft in Virginia, though it didn’t have any major deals in the Bay Area.
“Companies and their employees recognize the importance of the office as the preferred workplace for collaboration, creativity, mentorship, productivity and creating culture,” said Owen Thomas, CEO of Boston Properties, in a statement in May.
Roland Li is a San Francisco Chronicle staff writer. Email: firstname.lastname@example.org Twitter: @rolandlisf