San Francisco’s office demand is up 10%, says report on tenant tours

San Francisco’s commercial real estate fortunes may finally be turning.

Office demand in the city increased 10.2% in the second quarter of 2023 compared with the first quarter, according to data from real estate tech firm VTS. The researchers also found that the city has, since March, seen more prospective office tenants looking for spaces larger than 50,000 square feet.

The report comes after San Francisco’s office vacancy rate hit a record-high 29.4% in the first quarter of 2023 — January through March — and indicators pointed to a potential further rise. Despite pushes by major tech firms like Salesforce and Meta to get workers back in the office, the Bay Area has the highest percentage of remote workers of any U.S. metro area. (Wealthier workers are more likely to work from home, as are, of course, employees who can do their jobs on a computer.)

San Francisco’s office vacancies, in tandem with the exit of key retail businesses like Westfield San Francisco Centre, have sparked anxieties about the future of downtown San Francisco. This includes worries that the city’s property tax incomes will plummet, leading to city service cuts. Westfield is giving up its San Francisco Centre property after falling to 55% occupancy.

But the VTS data is a bright spot for the city’s commercial real estate landlords and downtown businesses. The firm calls its office demand index “the earliest look into the health of the office market.” Using touring activity, VTS measures demand by tracking the percentage of total office space prospective tenants are looking to rent.

The growing demand has been driven in part by the explosion of new artificial intelligence companies, VTS CEO Nick Romito told Bloomberg, which first wrote about the report. Though a new San Francisco-based AI startup seems to emerge every week, much of the nascent technology’s development appears to be centered south of the city at Mountain View-based Google, Menlo Park-based Meta and Santa Clara-based Nvidia. 

New York and San Francisco were the only mentioned cities with year-over-year demand growth last quarter; VTS found that office demand went down in Los Angeles, Seattle, Chicago, Boston, and Washington, D.C. 

San Francisco has a long way to go in filling up or converting its floors of empty workspace. The city’s office demand is still shy of Los Angeles’ and New York’s, according to VTS, and a commercial real estate researcher told SFGATE in April that vacancies may peak next winter.

Hear of anything happening at a Bay Area tech company? Contact tech reporter Stephen Council securely at stephen.council@sfgate.com or on Signal at 628-204-5452.