San Francisco was once the golden child of commercial real estate, with a burgeoning city center filled to the brim with professionals eager to contribute to the region’s economy.
However, the impending shift to flexible work that was accelerated by the pandemic has left the city’s real estate market on the brink of collapsing.
Prior to the pandemic, San Francisco’s downtown accounted for 70% of tax revenue and 40% of jobs, but the increased embrace of remote work from the likes of major office occupiers like Yelp and Airbnb has threatened the future of the city’s economy.
For the region’s office market, incoming lease expirations are driving vacancies higher. Now, there is over 25 million square feet of commercial space available for lease or sublease.
“We’re way above anything that was happening in the Great Recession and dot-com era days,” said Jay Shaffer, a cofounder and principal at Colton Commercial & Partners. “We have this shadow market of sublease availability in seemingly uncharted territories. And sublease inventory is still rising.”
Even more worryingly, JLL analysis indicates that vacancies could hit up to 53% in San Francisco’s Jackson Square by 2024.
Aside from the pandemic itself, the city’s reliance on technology-focused companies has made it much more exposed to the downsides of the remote work shift as tech firms embrace these types of arrangements. This pivot paired with the oversupply of office space has created the perfect concoction for real estate upheaval.