In a recent interview regarding the Bay Area’s office vacancy rates, we turned our attention to the findings presented by Jones Lang LaSalle (JLL). Their latest report indicates that the Bay Area’s largest office markets, including Silicon Valley, Oakland, and San Francisco, experienced record-high vacancy rates in the third quarter of this year.
San Francisco hit a vacancy rate of 34.5%, prompting some experts to describe the city’s situation as a “doom loop.” Oakland reported a vacancy rate of 29.1%, while Silicon Valley stood at 22%.
Despite these concerning statistics, Alexander Quinn, Senior Director of Research at JLL Silicon Valley, noted some signs of potential recovery within the beleaguered office market. With a soft job market, employees may be more inclined to heed management’s advice, leading to increased in-office work hours and greater tolerance for commuting. This shift appears to have positively impacted leasing activity, particularly in areas around San Jose Mineta International Airport and Santa Clara, where leasing activity surged by 21.6% compared to the previous quarter.
However, the outlook is less optimistic for downtown Oakland. From July to September, leasing activity, as well as the number and average size of leasing transactions, fell sharply. The report highlighted that two additional full-floor office spaces came on the market during this period, resulting in a total of 133 fully vacant office floors in downtown Oakland. To put this in perspective, if a typical Oakland office building has 20 floors, this figure suggests that there are six to seven entire buildings sitting completely vacant.
San Francisco’s vacancy rate exceeds that of Oakland and Silicon Valley by 5 to 12 percentage points, with rental rates remaining weak—down around 33% compared to 2019, the year before the pandemic. Nevertheless, mobile activity data reviewed by JLL experts indicates that more employees are beginning to spend extended hours in San Francisco, with downtown activity increasing by 13%.
The report provides a glimmer of hope for these three major office markets. Although a true improvement in vacancy rates may not occur until 2025, it was pointed out that San Francisco’s return-to-office rate has risen by 6% compared to last year, while job postings for remote positions have dropped by 16%. Together, these trends suggest a gradual shift away from dependence on remote work environments.
Additionally, demand for office space in Silicon Valley is significantly surging, with businesses increasingly seeking more office space. JLL tracking shows that office demand has increased by 21.4% in the third quarter compared to the previous one, especially for spaces over 100,000 square feet, which have tripled in demand. Bob Staedler, an executive at land use consulting firm Silicon Valley Synergy, remarked that while recovery speeds may vary across different office markets, Silicon Valley’s vacancy rate is likely to decline more rapidly than that of San Francisco or Oakland.
