According to a recent report, the AI boom is not enough to boost the rebound of the commercial real estate market in San Francisco, and the office vacancy rate in the region in the second quarter of this year still hit a historic high. On the product structure, the operating income of 10-30 billion yuan products was 401/1288/60 million yuan respectively.
A report released by commercial real estate company Cushman & Wakefield on Monday shows that the vacancy rate of San Francisco offices hit a new record of 34.5% in the second quarter of this year, higher than the 33.9% in the first quarter, the 28.1% in the same period last year and the 5% before the epidemic.
At the same time, the average asking price for San Francisco office space in the second quarter fell to $68.27 per square foot, the lowest level since the end of 2015, down from $72.90 a year ago, and below the peak of $84.70 in 2020.
After the COVID-19 pandemic, San Francisco is facing two major challenges: getting employees back to the office and a technology market slowdown causing massive layoffs in the industry.
According to Layoffs.fyi, a site that tracks layoffs, more than 0.53 million employees have been laid off by U.S. technology companies since early 2022, with major companies like Alphabet, Meta, Amazon, Tesla, Microsoft, and Salesforce all cutting their staff significantly.
Recently, the popularity of generative AI and the rapid growth of startups opening large offices in San Francisco have softened the blow.
The market leader, OpenAI, has a private valuation of more than $80 billion. Last October, the company announced that it would lease about 0.5 million square feet of space in the Mission Bay community, the largest office leasing in San Francisco since 2018. Robert Sammons, senior research director at Cushman & Wakefield, said OpenAI will continue to look for more office space in the city.
Also last year, OpenAI competitor Anthropic sublet Slack's headquarters for 0.23 million square feet of office space. In May of this year, Scale AI signed a lease for 0.17 million to 0.18 million square feet of space in an Airbnb office building.
Sammons said, "San Francisco is certainly the center of AI, but AI will not save San Francisco's commercial real estate market, although it will be helpful."
Sammons said that while cash-rich AI startups are signing major leases for new space, the bigger trend is for technology companies, law firms, and consulting companies to seek to reduce office space when existing leases expire, reflecting the widespread trend of hybrid work.
He added that in many cases, companies want to move to more desirable areas of the city because prices have fallen and employers need to be close to restaurants and shops to attract employees back.
Sammons said, "The best trophy space continues to perform well because tenants want to live in the best locations with the best amenities."
High Yee International said that the total vacant office space in San Francisco this quarter was 9.6 million square feet.
The company said in its report that there are positive signs in the market, and absorption is expected to improve in the second half of the year, and the number of office workers is stabilizing after a sharp decline.
But Sammons said there seems to be more room for rent declines and vacancy rate increases. He said uncertainty surrounding the upcoming presidential election may be a factor in delaying new leases.
"Sometimes when there's a major election, tenants will delay making decisions," he said.