San Francisco’s office market still struggling despite Google, Wells Fargo leases

The amount of office space listed for lease or sublease has more than quadrupled since before the pandemic, when San Francisco was the country’s most expensive market. Asking rents were down 1.31% from the previous quarter to $75.65 per square foot annually. They’ve fallen around 10% from the pre-pandemic high of around $83 per square foot.

The second quarter saw some major activity, including Google’s 300,000 square feet subleased from payments processor Stripe at 510 Townsend St., which was the biggest new lease of the pandemic. It’s a sign that there’s demand for high quality office space near public transit, said Robert Sammons, Cushman Wakefield senior director of Bay Area research.

Stripe, the third-most valuable startup in the world with a $95 billion valuation, chose to move its headquarters from South of Market to South San Francisco in 2019. San Francisco Business Times first reported the Google lease. Neither company responded to requests for comment.

“Big tech hasn’t really missed a beat despite a slowdown in hiring,” Sammons said.

However, much of the industry’s expansion efforts have been outside San Francisco. Google plans to spend $3.5 billion in 2022 on California real estate, but its biggest project is in San Jose.

Sammons expects vacancy to continue to increase this year and rents to fall further as the pandemic health crisis remains unresolved and remote work policies continue to take hold.

“We’re in this bit of a holding pattern,” Sammons said. “There are still some bright spots.”

Another big lease was cryptocurrency firm Ripple’s deal for 130,000 square feet at 600 Battery St. despite plunging bitcoin prices. The firm’s chairman and co-founder, Chris Larsen, was a major donor in the recent Chesa Boudin recall election.

Wells Fargo also renewed its lease at 333 Market St. for over 600,000 square feet, but is also selling a smaller building at 550 California St. as it brings back workers for around three days a week in the office.

“As part of our multiyear effort to build a stronger, more efficient Wells Fargo, we continually assess our real estate portfolio to ensure we are best meeting the needs of employees and customers, responding to consumer and economic trends, and managing our costs responsibly. We are committed to our San Francisco- based employees,” the bank said.

Total leasing activity was 1.5 million square feet in the second quarter and 1.3 million square feet in the first quarter, making 2022’s dealmaking on track to surpass last year, which saw 4.8 million square feet of leasing. In all of 2020, leasing totaled only 2.2 million square feet, a historic low, according to Cushman Wakefield.

Major tech firms are still giving up space. Jack Dorsey’s Block won’t renew its 470,000-square-foot lease at 1455 Market St. and plans to consolidate workers into two smaller offices in the city, after removing its San Francisco headquarters designation.

Tech layoffs and a plunge in venture capital funding could dampen business demand for office space as companies seek to cut costs. Though San Francisco’s unemployment rate is at a record low 1.9%, recession fears are ramping up and could weaken the economy.

Second quarter venture capital funding in Northern California fell 43.7% from the prior quarter to $18.9 billion, the lowest level since the last three months of 2020, according to research firm Pitchbook. The drop was steeper than the national decline of 13.8% over the same time period.

Roland Li (he/him) is a San Francisco Chronicle staff writer. Email: Twitter: @rolandlisf

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