San Francisco Office Leasing Still Slow in Q2

In the second quarter, office vacancy in the San Francisco Bay Area continued to struggle to keep up with other gateway markets. As of June, vacancy in the Peninsula market climbed another 20 basis points month-over-month, to 17.4 percent, according to CommercialEdge data. Compared to the previous quarter, the figure was up 10 basis points. Year-over-year, the Peninsula’s office vacancy was up 260 basis points.

The national office vacancy rate was 15.2 percent by the end of the second quarter. Compared to other gateway metros, San Francisco continued to have the second-highest vacancy, behind Chicago’s (which was at 19.5 percent). Manhattan (13.9 percent) and Los Angeles (13.1 percent) both recorded slight improvements since the previous quarter.

The Peninsula market recorded a few large lease agreements in the second quarter. The largest of them were either renewals or sublease deals, as office users maintained a conservative outlook. In the South Financial District, Wells Fargo renewed its 640,000-square-foot lease—the entire building—at 333 Market St., owned by Columbia Property Trust. The bank reportedly signed an agreement for 10 years.

The South Financial District had one of the highest vacancies, at 18.7 percent in June, up 20 basis points since the previous quarter. The North Financial District did not fare much better at 17.5 percent vacancy in June, up 50 basis points quarter-over-quarter. Cryptocurrency company Ripple Labs signed a new lease agreement in the submarket, taking 125,000 square feet at TMG Partners’ 600 Battery St.

Alexandria Center for Life Science – Millbrae campus. Image courtesy of Eikon Therapeutics

Peninsula submarkets where vacancy improved in the second quarter included life sciences hotspots South San Francisco (down 130 basis points quarter-over-quarter, to 8.8 percent as of June) and Burlingame (down 380 basis points, to 7.3 percent). In Millbrae, Eikon Therapeutics signed a 285,000-square-foot prelease at Alexandria Real Estate Equities’ Center for Life Science, set to come online in 2024. A speculative development in South San Francisco was preleased by biotech firm InterVenn Biosciences—the growing company agreed to occupy 142,000 square feet at 499 Forbes Blvd., constructed by Aralon Properties.

Bay Area’s Office Vacancy Also Struggles

The Bay Area market—comprising the East and South Bay—recorded slightly more activity in the second quarter. Overall office vacancy in the Bay Area was 15.5 percent as of June—up 20 basis points month-over-month. On a quarter-over-quarter basis, the figure is up 40 basis points. Year-over-year, Bay Area vacancy is down 130 basis points. A few new direct leases were recorded, with tech and life sciences taking the spotlight.

One significant deal occurred at a newly repositioned campus in Milpitas. BD Biosciences leased 240,000 square feet at Park Point, owned by a joint venture of PCCP and Embarcadero Capital Partners. The company will occupy two buildings, while the third is currently leased by Corsair. Office vacancy in Milpitas was up 320 basis points quarter-over-quarter, to 8.3 percent.

Mathilda Commons

A newly constructed campus in West Sunnyvale was fully leased. Apple expanded its local footprint by 382,000 square feet at Jay Paul Co.’s Mathilda Commons campus. The tech company’s Sunnyvale presence will total more than 800,000 square feet. West Sunnyvale recorded a drop of 200 basis points in office vacancy quarter-over-quarter, to 16.5 percent as of June, as one of the few submarkets where the figure improved.

Cupertino, where Apple is headquartered, had one of the lowest vacancies. The submarket recorded an uptick of 30 basis points since the previous quarter, to 3.2 percent vacancy as of June.

Vacancy in the San Jose submarket improved significantly since the previous quarter, but remained very elevated. The CBD recorded a drop in vacancy of 200 basis points quarter-over-quarter, to 23.6 percent. Meanwhile, vacancy in the North San Jose submarket increased by 300 basis points since the previous quarter, to 20.7 percent as of June.

Downtown Oakland continued to have one of the highest vacancies, at 26.4 percent as of June—up 140 basis points since the first quarter. Growing life science hub Emeryville recorded a drop of 190 basis points in vacancy, to 13.3 percent.

CommercialEdge covers 8M+ property records in the United States. View the latest CommercialEdge national monthly office report here.