San Francisco office market still struggling despite leases from Google and Wells Fargo

More than a fifth of San Francisco’s beleaguered office market remains vacant despite a handful of large leases in the second quarter, a sign that a sustained pandemic recovery remains elusive.

The vacancy rate of 21.7% remained stable compared to the first quarter and up from 20.1% compared to the previous year, according to the real estate brokerage firm Cushman & Wakefield, which is the level the highest since the dot-com crash of 2000. Another real estate brokerage firm, CBRE, which uses a different methodology, pegged the vacancy rate at over 24%, which would be an all-time high.

The amount of office space available for rent or sublease has more than quadrupled since before the pandemic, when San Francisco was the most expensive market in the country. Asking rent decreased 1.31% from the previous quarter to $75.65 per square foot per year. They are down about 10% from the pre-pandemic high of around $83 per square foot.

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

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

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

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

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

“We’re in this little holding pattern,” Sammons said. “There are still positives.”

Another big lease was cryptocurrency company Ripple’s deal for 130,000 square feet at 600 Battery St. despite falling bitcoin prices. Company president and co-founder Chris Larsen was a top donor in Chesa Boudin’s recent recall election.

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

“As part of our multi-year efforts to build a stronger and more efficient Wells Fargo, we continually evaluate our real estate portfolio to ensure that we best meet employee and customer needs, respond to consumer and economic trends, and manage 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, putting 2022 transactions on track to surpass last year , which saw 4.8 million square feet of rentals. In 2020, rental totaled just 2.2 million square feet, an all-time low, according to Cushman & Wakefield.

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

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

Second-quarter venture funding in Northern California fell 43.7% from the previous quarter to $18.9 billion, the lowest level in the last three months of 2020, the company says. Pitchbook research. The decline was steeper than the national decline of 13.8% over the same period.

Roland Li (he/him) is a writer for the San Francisco Chronicle. Email: [email protected]: @rolandlisf

Jose C. Birney