San Francisco Office Prices Have Fallen From $90/Sq. Foot To $62/Sq. Foot In Only 4 Years

A new report by real estate agency Cushman & Wakefield released this week found that the average office rent price in San Francisco has plummeted from $90/square foot in 2020 to $62/square foot today, marking a huge collapse not seen elsewhere in the nation.

Since the beginning of the decade, multiple factors have quickly brought down the amount of office space being used in San Francisco. The COVID-19 pandemic and it’s aftermath has been the most consistently cited reason, especially since it led to more companies being work from home or needing less office space because of work hybrid models. In 2024, work from home continues to grow despite many larger companies demanding employees return to the office on at least a partial basis. In San Francisco, one in three workers in San Francisco currently works from home. Also not helping matters are the high crime and homeless rates in the city, causing many workers to demand to work remotely instead of go into an office in the name of safety.

Mass layoffs in the tech industry, which began in earnest in October 2022, quickly wiped out the need for large office complexes and long-term leases. Fueled by economic uncertainty, high inflation, rising insurance costs, more people working from home, the rise of AI and automation, the continued rise of e-commerce, the rising crime rate in San Francisco, and many companies overcompensating, many large companies shed thousands of employees overnight. Companies in general have also largely opted to not renew long-term leases or leases for a large amount of square feet, bringing a continual cascade of companies not renewing pre-COVID leases and opening up even more office space.

Massive office vacancy rates resulted from the companies leaving such a large amount of space in such a short time frame. The average office vacancy rate in San Francisco jumped from 19% in 2021 to 27% in 2022 to 29.4% in the first quarter of 2023 to 31.8% in June. There was some good news during this time, with AI companies rushing into the city through a new tech field boom. In some cases, companies swooped in and leased 500,000 square feet of office space at once. However, that failed to break many trends. By September, the vacancy rate was at 33.9%, with crime forcing some tenants to switch to remote work and large scale renter companies such as WeWork also failing. By the end of November, that figure had risen to 35%, with December reaching 35.9%. The latest figures, released in March, found the rate to currently be at 36.6%.

Finally, the office shifts caused office buildings themselves to fall in price by a lot. 995 Market, which had a pre-Pandemic value of $65 million sold for only $6.5 million last month. Even buildings caught in bidding wars in recent months have sold for far below their pre-Pandemic value. As there is less demand for offices, building prices followed suit. As the Globe reported on in March, the same office vacancy rate can be applied to the retail vacancy rate, showing the commercial real estate sector as a whole showing vacancies in San Francisco to be well above 1/3rd in total.

Average office prices fall in San Francisco by over 30% in a few years

As a result, per square foot prices have also fallen dramatically. A study in March found that prices in San Francisco had gone from $88.40 per square foot in March 2020 to $68.35 per square foot in March 2024. However, the Cushman & Wakefield figures released this week proved to be even more dire for the city, as their findings pinned San Francisco offices going for $90/square foot in early 2020 compared to only $62/square foot today, a total loss of 31%.

Comparatively, average office space in New York is currently at $86 per square foot, with Los Angeles office space going on average for $49 per square foot, San Diego office space going for an average of just under $42/square foot, Chicago on average for $34/square foot and Austin at just over $48/square foot on average. However, San Francisco differs largely because of just how far average costs have fallen in the past 4 years. Other cities have not seen quite dramatic a fall, or in many cases, bounced back from hitting their low point.

Building occupancy researcher Michelle Duggan told the Globe on Thursday that “Those square foot prices in San Francisco are falling fast. What the report didn’t get into is that building owners are having to give lower and lower rates. They need the money to come in, and they can’t hold at $80 or $70 per square foot forever when comparable buildings are going even lower. You might get higher prices if the building have more amenities, like on-site parking or being adjacent to a BART station and other things like that. But, in general, companies are getting bargain rates now.

“And you have to wonder how many are holding out for less. Or think about this. Imagine the housing market being like this. If the San Francisco office rental market was at the same level of the California housing market, the average home would not be going for $900k, but more like $600k or even $500k. It’s that bad in San Francisco. This study isn’t surprising considering the vacancy rates we know.

“It will bottom out eventually. When the next office vacancy rates come out next month, we’ll see just how much they are slowing down in San Francisco. If the vacancy rates are slowing down, or even bottoming out like they have been predicted to do this year, we’ll see the square foot price bottom out as well. But until then, it will keep falling.”

The next office vacancy reports for San Francisco are to come out next month.