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Landlord optimism rallies in the wake of vaccine rollouts, though market remains at its softest in years
After a long year of being shutdown, San Francisco’s office market is beginning to show some signs of life. Although activity is still far below pre-COVID levels, tenants have become more active in searching and securing space as vaccine rollouts were successful and local governments have significantly eased health mandates. Leasing activity totaled 1.1 million square feet (msf), more than twice what was leased in the previous quarter. Still, fundamentals are shaky at best. The market’s overall average asking rent held firm over the quarter, now at $72.55 per square foot (psf) and is down 8.5% year over year. Overall availability increased by an additional 270 basis points (bps) over the quarter to 26.3% and Class A availability increased 330 bps to 24.0%. These are massive leaps from pre-pandemic levels of 9.5% and 8.8%, respectively, and it will be a long time before there is a supply-demand rebalance. The greatest factor in availability increase has been the meteoric rise in sublease inventory, which slowed this quarter but still stands at over nine million square feet (msf) available. With so much space on the market, rents will remain competitive – and will most certainly decrease further - until meaningful positive net absorption occurs to stabilize supply and demand fundamental pricing.