3 Reasons Why Demand for San Francisco Office Space May Remain Low

With overall market vacancy north of 20%, the San Francisco office market has more available supply than at any time in the past 20 years. But with its tech sector engine, many believe the market will rebound swiftly as the pandemic eases.  However there is mounting evidence San Francisco may be in for a prolonged period of reduced demand and high supply. 

The first reason is the broad adoption of hybrid work solutions that look to change the way the office is used and (often) result in the leasing of less space.  While it’s too soon to know the exact level of impact these new approaches may have, early data would suggest a 10% to 15% reduction in demand.    

The second driver is remote work.  When San Francisco-based employees relocate and the company follows and/or the company actively pursues a distributed workforce by hiring in other regions, it has the effect of reducing demand for San Francisco office space.  We are seeing a shift in the location of job postings for many San Francisco tech companies. They’re hiring, just not here.

Third is the commute.  San Francisco was built around the idea of public transit.  But people aren’t eager to ride packed trains and buses.  The presence of Uber and Lyft, coupled with the increased level of drivers trying to access the urban center via car, has already made city streets seem overly congested despite <30% of the downtown working population having returned to the office.  The challenges of commuting into the city will, in part, fuel greater demand for remote work and drive employees out of the region.

The combination of these factors has begun to erode the powerful pull of the City’s business ecosystem, a place where startups and mature companies alike begrudgingly signed expensive leases because they felt they had to.  To be sure, the City remains compelling due to the  venture community, educational institutions like Stanford and Cal and the aggregated presence of so many technology companies and their employee talent.  But it’s also a time when office building owners should keep a close eye on trends in demand and be nimble in adapting to a changing market.