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Remote work continues to wreak havoc on San Francisco's office market—these other markets aren't too far behind

Unveiling the 5 urban office markets with the highest vacancy rates

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In February, Paramount Group, a commercial real estate landlord based in New York City, informed investors that it is likely to surrender ownership of two significant office properties in San Francisco. The company noted that the market value of both properties has dropped well below the debt used for their acquisition. One of these properties, Market Center, is a 770,000-square-foot Class A complex that formerly served as Chevron’s headquarters. The other property is a 280,000-square-foot historic structure situated in downtown San Francisco at 111 Sutter Street. Both properties were purchased in 2019 for nearly $1 billion in total, but they are currently experiencing a 45% vacancy rate, and their value has significantly declined.

Vacancy rates for office space have surged in response to remote and hybrid work, leaving today’s office vacancy rates significantly higher than they were before the pandemic. At the end of 2023, U.S. office vacancy reached 18.9%, according to a report published this week by Moody’s Investor Services

But some markets are feeling the pressure of office vacancies more than others. Before 2020, tech hubs were considered to be reliable commercial markets. However, today, they are facing the brunt of office vacancies, especially since tech companies tend to be more accommodating of remote work. San Francisco, Austin, Seattle, and San Jose have witnessed the most significant increases in vacant office space since 2019.

AI generated image by ResiClub

San Francisco is seeing the most aggressive office vacancy levels of any other market with nearly a quarter of its office space without a tenant as of Q4 2023.

Among the 25 largest urban office markets, these 5 markets have the highest office vacancy rates.

San Francisco (24.6%)

Houston (23.8%)

Dallas (23.5%)

San Jose (20.9%)

Minneapolis (22.1%)

High vacancy rates have been met with office rent declines across many U.S. cities. According to the report by Moody’s, rent for U.S. office space decreased by -1.5% between Q4 2019 and Q4 2023. San Francisco saw the largest decline, with office “taking rents” per square foot in the market falling -28.6% between Q4 2019 and Q4 2023.

If Paramount Group does indeed surrender the keys to the two San Francisco office properties, they surely won’t be the last to do so.

One study by Capital Economics, published in October 2023, forecasts office space capital values in San Francisco will fall more than 50% from their peak through 2025. Capital values for offices in Chicago and NYC are also expected to drop considerably. 

ResiClub PRO members just got access to the latest analysis added in the Lance Lambert Inventory Tracker—which includes monthly analysis for over 800 metros and 3,000 counties.

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