SAN JOSE — The Bay Area’s three major office markets have all been weakened by coronavirus-linked ailments, but San Francisco appears to have fared much worse than the markets in the San Jose and Oakland metro areas, commercial real estate surveys show.
Subleases are increasing, vacancy levels are rising, and rents are flat or lower in all three markets — but San Francisco’s office market problems are more pronounced than is the case for the Oakland area or the South Bay, according to recent reports from two commercial real estate firms, Kidder Mathews and Colliers.
Sublease space is increasing at a quick pace in San Francisco as tech companies and other firms chop their operations in that city. However, sublease vacancies have also marched higher in the Oakland area and the San Jose metro region, the two firms report.
During the one-year period that ended in March, the amount of San Francisco’s empty sublease office space rocketed higher by 185%, Kidder Mathews reported.
Over the similar year-long stretch ending in March, sublease vacancies increased by 100% in Oakland-Berkeley-Alameda-Emeryville, according to a Colliers report for the first quarter of 2021. In the South Bay, sublease vacancies rose 54%, Kidder Mathews stated in its report.
Sublease vacancies appear to have chilled the office market in the South Bay, although this dynamic likely extends to both the Oakland metro market and to San Francisco.
“The rise in sublease space and remote work measures are applying downward pressure to overall asking rates,” Kidder Mathews reported, regarding the South Bay office market.
During the one-year period that ended in March, office vacancies have risen by 18.2% in the South Bay and by 16.2% in the Oakland-Berkeley-Alameda-Emeryville areas. But over the same period, office vacancies soared 93.1% in San Francisco, according to a report by Kidder Mathews.
The typical office vacancy rate is 11.4% in the South Bay, 9% in the Oakland-Berkeley-Alameda-Emeryville area, and 11.2% in San Francisco, Kidder Mathews reported.
Average asking office rent rates are flabby at best in all three markets.
During the one-year period ending in March, office rents rose 3.6% in Oakland-Berkeley-Alameda-Emeryville — but they fell 14.8% in the San Francisco Financial District and by 3.7% in the South Bay, according to Kidder Mathews.
Various reports indicate that a recovery is underway in all three of these major office markets — but the road ahead remains murky.
That uncertainty was sketched out by Kidder Mathews in its report regarding the South Bay market.
“Asking lease rates are expected to remain steady,” Kidder Mathews stated. “Tenants are sticking with short-term leases as companies weigh having workers continue to work from home while planning a return to normalcy” post-COVID.