A fifth of SF office space remains vacant, but there’s a ‘glimmer of hope’

New leasing activity, excluding renewals, totaled 1.77 million square feet, the highest level since the third quarter of 2019.

“The third quarter was substantially better” than expected and offers “a glimmer of hope,” said Robert Sammons, senior director of Bay Area research. The brokerage had expected the vacancy rate to climb as high as 23% this year but plans to revise that number, likely to a lower amount, he said.

Office rents rose slightly to $73.46 per square foot annually from the prior quarter’s $73.24, but below the 2019 peak of $83.82 per square foot.

High-quality office space is still attractive to tenants, especially as companies try to lure workers back, Sammons said. Robust ventilation systems and outdoor space like rooftop decks are highly sought after.

“They need to tempt their employees back to the office. They need high-quality space,” he said.

The biggest lease of the quarter was financial tech company Chime’s 191,833-square-foot deal at 101 California St., which was also the largest new deal during the pandemic.

Pinterest, which canceled a huge lease at 88 Bluxome St., renewed its headquarters lease at 651 Brannan St. for 121,000 square feet.

Other leases were signed by startups Retool and Notion; Citi Ventures, the investment arm of the major bank; and Yelp, which is moving its headquarters from 140 New Montgomery to 350 Mission St. in a sublease with Salesforce.

Bloomberg reported in July that Google and Facebook are said to be touring office space in San Francisco, but no deals have been signed.

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“San Francisco’s always been resilient. You go back over 100 years, whether it’s fires or earthquakes or the dot-com bust, we’ve always come roaring back, and usually we’ve led the economy back from the bottom, and I think that’s going to happen with us today,” said Chris Roeder, a JLL broker, at law firm Allen Matkins’ View From the Top real estate event last month.

“In the end, I think we’re going to come back stronger than ever, but it’s going to take a year or two to sort itself out,” he said. One major reason for optimism is the continued flood of venture capital investment.

Venture capitalists invested a record $156.2 billion globally in the second quarter, and Silicon Valley and San Francisco accounted for $23.7 billion of the funding, by far the largest for one region and nearly twice as much as the previous years, according to CB Insights.

“These VC-funded companies are hiring. We have a really low unemployment rate,” Roeder said. “We feel very bullish just based on the companies and how well that they’re doing.”

David Sternberg, executive vice president of Brookfield Properties, said at the Allen Matkins event that tenant interest has picked up at 415 Natoma St., the only new tower in San Francisco nearing completion without tenants.

“Tours have picked up over the last 60 days dramatically,” he said. “We’re really getting a good response.”

The project is part of the 5M development, which is a partnership between Brookfield and Hearst, owner of The Chronicle, whose office is next to the new tower.

The key to the city’s revival will be office workers returning downtown, which has been complicated by the delta variant, Sternberg said.

“I think we’re more productive being around one another and listening and sharing ideas,” he said.

Roland Li is a San Francisco Chronicle staff writer. Email: roland.li@sfchronicle.com Twitter: @rolandlisf

Article source: https://www.sfchronicle.com/sf/article/A-fifth-of-S-F-office-space-remains-vacant-but-16520151.php

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