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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.

“Due to the clear signals of slowing economic growth we’ve taken a number of measures to safeguard our business and reduce costs, including pausing expansion efforts and the difficult decision to reduce the size of our employee team by approximately 10%,” a Compass spokesperson told SFGATE. Compass is headquartered in New York City. 

In its most recent housing report for the Bay Area, Compass reported that rising interest rates are affecting Bay Area home sales — overall sales are declining and the number of active listings and price reductions are increasing. Still, the report steeled against any drastic conclusions, writing: “As an analogy, if traffic is going 100 miles per hour and drops to 65, it feels a lot slower, but can not reasonably be described as slow.”

Redfin, a Seattle-based brokerage, cut around 6% of its employees, a company spokesperson told SFGATE. That’s approximately 470 employees, including some from Rentpath and Bay Equity, two of the company’s subsidiaries. Redfin CEO Glenn Kelman wrote in a statement, “With May demand 17% below expectations, we don’t have enough work for our agents and support staff, and fewer sales leaves us with less money for headquarters projects.”

As mortgage rates continue to climb, there are signs that the red hot housing market is finally slowing nationwide. Rates have risen from approximately 3% in early January to more than 6% currently.

However, even though most downtown San Francisco neighborhoods saw home values grow over the past year and a half, their recovery was slow compared to areas farther from the city center. And nearly all neighborhoods in San Francisco lagged the average increase in home values across the wider San Francisco metropolitan region, which Zillow defines as the Bay Area counties of Alameda, Contra Costa, San Francisco, San Mateo and Marin.

And even though buyer demand remains high and inventory is low in the Bay Area, the housing market is showing signs of “normalizing” amid this year’s surge in mortgage interest rates — which could stall or even reverse San Francisco’s recovery, analysts say.

The new data shows yet again how the pandemic exodus from major city centers sent home values and rents plummeting there — a phenomenon that Stanford University economists Arjun Ramani and Nicholas Bloom in a study in May 2021 dubbed the “doughnut effect.” The pandemic “dramatically tilted the cost-benefit calculus for living in small homes close to city centers, versus larger homes further out,” said Jeff Tucker, senior economist for Zillow, in an email.

Nowhere were the effects as dramatic as in San Francisco, Tucker said.

“In the Bay Area, America’s most expensive major metro area, the reconsideration of these tradeoffs has yielded the most dramatic shifts in local rent and price dynamics that we’ve seen anywhere in the country,” he said.

A number of factors could explain why San Francisco represents the extreme, Tucker said — among them the city’s already-sky-high home prices, rents and incomes; its very high number of remote-friendly employers; and relatively tight public health restrictions throughout much of the pandemic.

Home values across San Francisco declined by an average 0.58% from January 2020 to April 2021, according to Zillow data — compared with an average increase of 9.4% for the five-county metro area.

But most neighborhoods in San Francisco have experienced a turnaround in the past year and a half.

Most notably, Little Hollywood, sandwiched between Candlestick Point State Recreation Area and Visitacion Valley in southeast San Francisco, saw home values soar 27% from 2021 to 2022. By contrast, from 2020 to 2021, home values grew only 6.8%. Over the entire pandemic, from 2020 to 2022, home values grew 25%.

The Tenderloin saw the biggest negative impact on home values during both time periods, and was the only neighborhood still recording a decline in the 2021-22 period, at -0.3%. Still, that was an improvement over 2020-21, when home values in the neighborhood dropped 11.8%. The decrease over the entire 2020-22 period was 9.1%.

Home values in the North Waterfront area next to the Embarcadero grew 2.4% from 2021 to 2022, reversing a drop of 2.8% from 2020 to 2021. But over the entire pandemic period, the neighborhood was in negative territory with a decline of 1.3%.

Still, many areas closer to downtown have been staging a comeback in the past year and a half. Mission Bay recorded a 7.9% decrease in home values from 2020 to 2021, but from 2021 to 2022, values rose 5.6%. In Nob Hill, home values dropped 6% from 2020 to 2021 but turned around to 6% growth from 2021 to 2022.

For all of San Francisco, the average increase in home values for 2021-22 was 16.2%, compared with 26% for the five-county metro area, according to Zillow data.

Annual price growth nationally and in most places locally was higher from early 2021 to early 2022 compared with the previous year, Tucker said, and it reached its all-time record high in April before starting to descend in recent weeks.

The main driver, he said, was more people competing to buy homes.

“Higher level of housing demand is the first explanation for higher baseline of neighborhood price growth in 2021-2022,” Tucker said.

From late 2021 to early 2022 in San Francisco, most adults were vaccinated and offices began reopening, so there was “at least a partial rollback in the ‘doughnut effect’ dispersal of demand away from urban core neighborhoods,” he said.

“Activity in the city revived, and that translated to a return of demand to purchase homes in the urban core,” he said.

Forest Hill, just west of Twin Peaks, saw considerable home value growth, rising 26% from 2021 to 2022. From 2020 to 2021, the neighborhood saw just a 5.2% increase in home values.

Cow Hollow and the Marina had the biggest decline in home values among all San Francisco neighborhoods from 2020 to 2021, -9.8% and -9.2%, respectively, but both have seen substantial growth since. Cow Hollow’s home values increased 12.4% from 2021 to 2022, putting it at 2.7% growth for the entire 2020-22 period, and home values in the Marina jumped 18.3% from 2021 to 2022, resulting in 7.3% growth for the 2020-22 period.

The Presidio saw the biggest jump in growth during the past year and a half compared with the entirety of the pandemic. From 2021 to 2022, they went up 15.5%.

But these gains may slow down as mortgage rates continue to rise, Tucker said.

It is “very likely that prices will at the very least plateau in San Francisco, and a modest decline is not out of the question,” he said, noting that when interest rates last rose in 2018-19, home prices dipped in San Francisco and San Jose.

“That suggests that housing demand is particularly sensitive to interest rates in the Bay Area,” Tucker said. “Mortgage interest rates and home prices are substantially higher now than in late 2018, so I would not be surprised by another temporary drop in home values in San Francisco.”

Kellie Hwang is a San Francisco Chronicle staff writer. Email: kellie.hwang@sfchronicle.com Twitter: @KellieHwang

Egan sees the Federal Reserve’s plan to raise interest rates as the likeliest trigger for a recession.

“Tech is probably the sector of the economy that’s more sensitive to interest rates,” Egan said. “That places us at greater risk.”

Higher interest rates could discourage venture capitalists from investing in startups, dampening job growth and demand for other services. Global venture capital fundraising dropped around 27% in the second quarter compared with the first, according to preliminary data last week from research firm CB Insights.

A prolonged downturn would be a major setback for San Francisco’s nascent economic recovery from the pandemic, which has already lagged other major cities, Egan said. “The tech industry has been the strongest hirer of people since the start of the pandemic, even if most of them are working from home,” Egan said. “A downturn in tech would hit us worse than other places.”

A 2012 Bay Area Council Economic Institute study found that each high-tech job supports the creation of 4.3 additional jobs, though that number is lower if many tech workers are remote, Egan said.

San Francisco’s percentage of workers back in the office has been consistently among the lowest among major U.S. cities at around 35%, according to security firm Kastle. Office vacancy, or the amount of space available for lease, is more than 20%. Those figures could get worse during a recession, as companies seek to cut more real estate costs and workers are discouraged from paying for a commute and lunch at the office.

In May, the storied Menlo Park venture capital firm Sequoia Capital told startup founders that it funds that it was at a “crucible moment,” with a market downturn and longer recovery period compared with 2020. The stock market had its worst first half of the year since 1970, with the tech-heavy Nasdaq Composite falling more than 30% from its all-time high in November.

“Capital was free. Now it’s expensive,” Sequoia’s team said in a presentation. “Growth at all costs is no longer being rewarded.”

The venture firm encouraged startups to increase revenue from customers if possible, cut costs and, if necessary, raise equity or debt.

In the past two months, tech layoffs have totaled around 32,000 people globally, according to tracker layoffs.fyi — the highest number in two years, when the pandemic started.

In the Bay Area, electric car firm Tesla, video game company Unity and e-commerce firm Bolt have each laid off hundreds in recent months. Los Gatos firm Netflix, one of the earlier winners of the pandemic, has seen its stock slide around 70% this year and laid off another 300 employees last month.

Tech giants such as Facebook parent Meta and Salesforce, San Francisco’s largest private employer, said they are still hiring but doing so more selectively.

The huge balance sheets and continued growth of the biggest names in tech will be a bulwark against a severe downturn, Egan said.

“There are more layoffs in tech now, and the ratio of job listings to hires is trending downward. But for the industry as a whole, there are still more job postings than hires, which is a positive sign,” Egan said. “I don’t think this is dot-com crash 2.0,” or a sequel to the 2001 recession.

A recession is generally defined as at least two consecutive quarters of shrinking gross domestic product output and rising unemployment.

The Commerce Department said GDP shrank 1.6% in the first quarter because of lower consumer spending of 1.8% and a record trade deficit. The agency’s second-quarter GDP estimate will be reported in late July.

Scott Anderson, chief economist of Bank of the West, wrote in a research note in late June that the country is “still a ways away” from the economic contraction that marks a recession, citing low weekly initial jobless claims that are around 45% below the levels seen last summer. National new home sales also rebounded in May, a surprise for economists.

Anderson forecasts U.S. GDP growth of 1.8% in the second quarter, which he expects to slow to around 1% in the second half of the year, because of slowing consumer spending and flat investment growth.

“I can envision many things that could put the U.S. in recession by next year, including further aggressive interest rate hikes from the Fed, another extensive equity and bond market selloff from current levels, a sharper than expected drop in U.S. home prices, and a business investment retrenchment as corporate profits struggle under rising input costs and softening demand,” Anderson wrote.

Although the Bay Area real estate market is showing signs of cooling as mortgage rates rise, experts say the situation isn’t comparable to the apocalyptic housing crash of 2008. But buying a home is getting more challenging.

Patrick Carlisle, Bay Area chief market analyst for real estate brokerage Compass, said rising interest rates, a plunging stock market and the surprise of tech layoffs are all dampening the housing market. Consumer sentiment has also hit a record low in June amid soaring inflation. Compass itself laid off 10% last month, or 450 employees, citing “slowing economic growth.”

“All of it adds together to create a psychology of caution, and fear of what may be coming, which, naturally, is covered by the media, which reinforces that fearful or pessimistic psychology,” Carlisle said. “And besides the very real economic changes impacting people’s ability to buy, psychology is always an enormous factor in real estate and financial markets. Optimism and confidence fuel markets, pessimism and fear throw cold water on markets.”

But decades of underbuilding homes in the Bay Area and a bleak prospect for new residential supply, particularly in San Francisco, means that the local housing market is not inflated and not at risk of a bubble, Egan said.

And unlike the pandemic crisis of 2020, the housing crash of 2008 and the dot-com burst of 2001, Egan said he believes the potential recession of 2022 will be triggered by federal monetary policy with a goal of taming inflation. If inflation falls faster than expected, that could mean a smaller interest rate increase and less of an impact on tech and the local economy, he said.

“The Fed deliberately cooling something off is not popping a bubble,” Egan said. “It’s turning down the heat.”

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

Egan sees the Federal Reserve’s plan to raise interest rates as the likeliest trigger for a recession.

“Tech is probably the sector of the economy that’s more sensitive to interest rates,” Egan said. “That places us at greater risk.”

Higher interest rates could discourage venture capitalists from investing in startups, dampening job growth and demand for other services. Global venture capital fundraising dropped around 27% in the second quarter compared with the first, according to preliminary data last week from research firm CB Insights.

A prolonged downturn would be a major setback for San Francisco’s nascent economic recovery from the pandemic, which has already lagged other major cities, Egan said. “The tech industry has been the strongest hirer of people since the start of the pandemic, even if most of them are working from home,” Egan said. “A downturn in tech would hit us worse than other places.”

A 2012 Bay Area Council Economic Institute study found that each high-tech job supports the creation of 4.3 additional jobs, though that number is lower if many tech workers are remote, Egan said.

San Francisco’s percentage of workers back in the office has been consistently among the lowest among major U.S. cities at around 35%, according to security firm Kastle. Office vacancy, or the amount of space available for lease, is more than 20%. Those figures could get worse during a recession, as companies seek to cut more real estate costs and workers are discouraged from paying for a commute and lunch at the office.

In May, the storied Menlo Park venture capital firm Sequoia Capital told startup founders that it funds that it was at a “crucible moment,” with a market downturn and longer recovery period compared with 2020. The stock market had its worst first half of the year since 1970, with the tech-heavy Nasdaq Composite falling more than 30% from its all-time high in November.

“Capital was free. Now it’s expensive,” Sequoia’s team said in a presentation. “Growth at all costs is no longer being rewarded.”

The venture firm encouraged startups to increase revenue from customers if possible, cut costs and, if necessary, raise equity or debt.

In the past two months, tech layoffs have totaled around 32,000 people globally, according to tracker layoffs.fyi — the highest number in two years, when the pandemic started.

In the Bay Area, electric car firm Tesla, video game company Unity and e-commerce firm Bolt have each laid off hundreds in recent months. Los Gatos firm Netflix, one of the earlier winners of the pandemic, has seen its stock slide around 70% this year and laid off another 300 employees last month.

Tech giants such as Facebook parent Meta and Salesforce, San Francisco’s largest private employer, said they are still hiring but doing so more selectively.

The huge balance sheets and continued growth of the biggest names in tech will be a bulwark against a severe downturn, Egan said.

“There are more layoffs in tech now, and the ratio of job listings to hires is trending downward. But for the industry as a whole, there are still more job postings than hires, which is a positive sign,” Egan said. “I don’t think this is dot-com crash 2.0,” or a sequel to the 2001 recession.

A recession is generally defined as at least two consecutive quarters of shrinking gross domestic product output and rising unemployment.

The Commerce Department said GDP shrank 1.6% in the first quarter because of lower consumer spending of 1.8% and a record trade deficit. The agency’s second-quarter GDP estimate will be reported in late July.

Scott Anderson, chief economist of Bank of the West, wrote in a research note in late June that the country is “still a ways away” from the economic contraction that marks a recession, citing low weekly initial jobless claims that are around 45% below the levels seen last summer. National new home sales also rebounded in May, a surprise for economists.

Anderson forecasts U.S. GDP growth of 1.8% in the second quarter, which he expects to slow to around 1% in the second half of the year, because of slowing consumer spending and flat investment growth.

“I can envision many things that could put the U.S. in recession by next year, including further aggressive interest rate hikes from the Fed, another extensive equity and bond market selloff from current levels, a sharper than expected drop in U.S. home prices, and a business investment retrenchment as corporate profits struggle under rising input costs and softening demand,” Anderson wrote.

Although the Bay Area real estate market is showing signs of cooling as mortgage rates rise, experts say the situation isn’t comparable to the apocalyptic housing crash of 2008. But buying a home is getting more challenging.

Patrick Carlisle, Bay Area chief market analyst for real estate brokerage Compass, said rising interest rates, a plunging stock market and the surprise of tech layoffs are all dampening the housing market. Consumer sentiment has also hit a record low in June amid soaring inflation. Compass itself laid off 10% last month, or 450 employees, citing “slowing economic growth.”

“All of it adds together to create a psychology of caution, and fear of what may be coming, which, naturally, is covered by the media, which reinforces that fearful or pessimistic psychology,” Carlisle said. “And besides the very real economic changes impacting people’s ability to buy, psychology is always an enormous factor in real estate and financial markets. Optimism and confidence fuel markets, pessimism and fear throw cold water on markets.”

But decades of underbuilding homes in the Bay Area and a bleak prospect for new residential supply, particularly in San Francisco, means that the local housing market is not inflated and not at risk of a bubble, Egan said.

And unlike the pandemic crisis of 2020, the housing crash of 2008 and the dot-com burst of 2001, Egan said he believes the potential recession of 2022 will be triggered by federal monetary policy with a goal of taming inflation. If inflation falls faster than expected, that could mean a smaller interest rate increase and less of an impact on tech and the local economy, he said.

“The Fed deliberately cooling something off is not popping a bubble,” Egan said. “It’s turning down the heat.”