San Francisco, CA
San Francisco's AI boom can't stop real estate slide, as office vacancies reach new record
Artificial intelligence has been a big boon for San Francisco real estate. But not enough of one to make up for the broader struggle across the market.
The vacancy rate for San Francisco office space reached a fresh record of 34.5% in the second quarter, according to a report Monday from commercial real estate firm Cushman & Wakefield. That’s up from 33.9% in the first quarter, 28.1% in the same period a year ago and 5% before the pandemic.
Meanwhile, the average asking rent dropped to $68.27 per square foot in the quarter, the lowest since late 2015, down from $72.90 a year earlier and a peak of $84.70 in 2020.
San Francisco is reeling from the twin challenges of bringing people back to the office after the Covid pandemic and a slowdown in the tech market that’s led to mass job cuts across the industry. Tech companies have laid off more than 530,000 employees since the start of 2022, according to the website Layoffs.fyi, with major downsizing at Alphabet, Meta, Amazon, Tesla, Microsoft and Salesforce.
Softening the blow of late has been the soaring popularity of generative AI and the decision by fast-growing startups to open large offices in San Francisco.
OpenAI, the market leader with a private valuation that’s topped $80 billion, announced in October that it was leasing about 500,000 square feet of space in the Mission Bay neighborhood, the biggest office lease in the city since 2018. Robert Sammons, senior research director at Cushman & Wakefield, said OpenAI is continuing to look for more space in the city.
Also last year, OpenAI rival Anthropic subleased 230,000 square feet at Slack’s headquarters. And in May of this year, Scale AI signed a lease for a reported 170,000 to 180,000 square feet of space in Airbnb’s office building.
“San Francisco is certainly the center of AI, but AI is not going to save the San Francisco commercial real estate market,” Sammons said. “It will help.”
While richly capitalized AI startups are signing large leases for new space, the bigger trend is that tech companies, law offices and consulting firms are looking to reduce their footprint when existing leases come up, Sammons said, reflecting the widespread move to hybrid work.
In many cases, companies are looking to relocate to higher quality space in more desirable parts of the city, because prices have come down and employers need to be near restaurants and shops to get staffers to come back, Sammons added.
“The best quality trophy space continues to perform well, because tenants want to be in the best locations with the best amenities around them,” Sammons said.
Some of the city’s top employers, including Salesforce, Uber, Visa and Wells Fargo, have brought employees back to offices for part of the week. That’s helped in the financial district, where the vacancy rate is still 34.2% on the north side and 32.7% on the south side at the end of the quarter. In SoMa, which historically was a popular area for venture-backed startups, the vacancy rate is almost 50%.
SoMa is further away from mass transit options and has also been hurt by large retail departures. Vacant office space across San Francisco for the quarter totaled 29.6 million square feet, Cushman & Wakefield said.
The firm said in its report that there are positive signs in the market, with absorption poised to improve in the second half and office job numbers stabilizing following a steep drop-off. But Sammons said it looks like there’s more room for rents to fall and for vacancies to rise. Uncertainty surrounding the upcoming presidential election may be a factor delaying new leases, he said.
“Sometimes tenants postpone making decisions when there are major elections,” he said.
WATCH: Commercial real estate vacancies in San Francisco are at an all-time high
The San Francisco Giants have been well-known this century for their big-time left-handed starting pitchers.
From Barry Zito to Madison Baumgarner to Blake Snell, the torch has been passed from ace to ace with seemingly no end in sight.
That is until Snell triggered the opt-out clause in the contract that he signed with the club last offseason after proving to the baseball world that he is legit and not someone who has good seasons every once in a while.
It has been a ride for the ace throughout his career, suiting up for three teams (so far) and performing better at each stop than he did in his last.
Snell has been named an All-Star once in his career, but has won the Cy Young Award twice, once in the American League and once in the National League, and has done so in dominating fashion.
The lefty is a groundball pitcher by trade, but a strikeout artist at heart, carrying a career K/9 of 11.2 through his nine years in Major League Baseball, an all-time high mark for any pitcher to ever play the sport.
It is the strikeouts that will land Snell a new deal in free agency this winter, while the groundball induction will keep him consistent, depending on the defense behind him.
In a recent article for The Athletic, Tim Britton took a crack at projecting the contracts that the top available free agents will garner this winter, with Snell projected to land a four-year, $110 million deal.
This comes as a surprise with his track record of dominance, as the last deal that Snell signed was for $23.5 million, so this projection from Britton has the ace opting out to only get a $4 million raise.
Snell’s contract should come much closer to the $30 million mark, if not hit that mark on the nose, as he is one of the best available pitchers on the market this year, and could help the rotation of any contending team.
While the Giants do have an ample amount of room on their payroll to land the ace with either figure, they need more than just one ace to remain competitive in the National League West, which could be the second-best division in baseball and may be better suited splitting that money up among multiple younger players.
It will be an interesting winter for more than just San Francisco with Snell now available to take his talents anywhere.
The offseason has started for the San Francisco Giants, as they are going to be trying to improve and snap their playoff drought.
It has been a tough couple of seasons for the Giants, and they are hoping that new leadership at the top will help result in some positive changes. Landing the superstars in free agency has been a struggle for San Francisco, as they have missed out on players like Aaron Judge and Shohei Ohtani in recent years.
With Buster Posey in charge now, the hope is that he will be able to convince some of the elite players to come to the Giants. While San Francisco will be looking to add some talent, preferably in the lineup, they did have one of the free agent signings from last offseason opt out in Blake Snell.
The southpaw signed just before the start of the season, and it really impacted his effectiveness on the mound at the start of the campaign. However, he really turned it around in the second half of the season and decided to opt out and test free agency once again this offseason.
Snell is likely going to receive the big contract that he desired last offseason, as his new deal should be north of $100 million. Even though he had a good second half of the season with the Giants, it doesn’t appear like he is going to be returning to San Francisco.
Recently, Kerry Miller of Bleacher Report named the Boston Red Sox as the ideal landing spot for the southpaw.
“The Red Sox need an ace. The Red Sox also have an aversion to doing long-term deals in free agency. The fit with Snell is good just from these perspectives, and it doesn’t hurt that he also has a track record of success in the AL East.”
The Red Sox are certainly going to be a team in the mix for one of the best pitchers on the market, as they have a clear need for an ace. Snell is familiar with the American League East from his time with the Tampa Bay Rays, as he had some very successful seasons there.
With the division being really competitive, Boston knows what they need to spend in order to compete, and Snell makes a lot of sense for them.
For the Giants, while their left-hander did well for them in the second half, the money that it would cost to keep him would likely be better allocated to their lineup.
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