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CompStak conducted a detailed analysis of office leasing trends for Q2 2024, uncovering significant shifts in lease terms, concession ratios, and effective rents across major U.S. markets. Using CompStak’s extensive data, we’ve identified a notable increase in lease terms driven by law firms and government tenants, as well as rising rents in Prime Class A office spaces. Our upcoming blog series will break down these key findings, offering a closer look at the evolving office real estate landscape.
Interested in exploring the full report? Find it here.
San Francisco and the Bay Area Office Market
In this next segment, CompStak evaluated office market statistics for San Francisco and the Bay Area, uncovering the following major findings:
- Trending differently from the U.S. overall, office-using employment in San Francisco and the Bay Area has declined since its post-COVID peak. From June 2023 to June 2024, employment in the information and professional services sectors fell by 8.2% and 5.0%, respectively.
- One-third of San Francisco/Bay Area office leases will expire by 2026, with 27% set to expire between the second half of 2024 and Q2 2025. Major TAMI tenants, including Google and Apple, face upcoming renewal decisions, marking a critical period for the region’s office market.
- San Francisco and Bay Area concession ratios for Prime and Other Class A leases increased in 2024, with Prime Class A reaching 13.8% and Other Class A at 13.2%, both above 2018-2019 levels. In contrast, Class B/C ratios have declined over the past two years.
- In 2024, only Prime Class A effective rents in San Francisco exceeded pre-pandemic levels, rising 9.6% above 2018-2019 averages. Meanwhile, rents in Other Class A and Class B/C buildings remain 7.5% and 15.7% lower, respectively.
- Since April 2020, TAMI tenants have dominated relocations in the San Francisco Bay Area, accounting for 43.7% of moves—more than three times the 13.6% share by FIRE tenants, who favored newer Class A buildings. The Financial District in San Francisco and Oakland saw the biggest gains.
In Contrast to U.S. Overall, Office-Using Employment in San Francisco and the Bay Area is on the Decline from its Post-Covid Peak
Office-using employment, once a key driver of office demand in San Francisco and the Bay Area, peaked in 2022 and has been trending downward since, in contrast to the positive growth of office-using jobs in the U.S. overall. Both the information and professional and business services sectors, which include many technology positions traditionally driving the local economy, saw their employment peaks after the end of the pandemic in June 2023. However, as of June 2024, employment in these sectors has declined by 8.2% and 5.0%, respectively in the San Francisco and Bay Area region. In contrast, employment in the financial services sector in San Francisco and the Bay Area peaked before the Great Financial Crisis in 2001.
San Francisco-Oakland-Hayward, CA MSA, Total Office-Using Employment
San Francisco Office Vacancy Rates Mirror U.S. Trends, With Central Business District Vacancies Outpacing Suburban Rates and Rising Faster
Similar to the national NPI vacancy rates, CBD office, suburban office, as well as overall office continued to rise in 2024 following an inversion in Q3 2021. Previously, suburban office tracked higher compared to rates of both CBD and overall office even after the Great Financial Crisis. Vacancy rates of CBD office post-COVID recession, however, has trended upward at the faster rate, leading both CBD and overall office. As of Q2 2024, CBD vacancy stood at 26.4% compared to suburban and overall office at 18.3% and 21.8%, respectively.
San Francisco CSA Office, NCREIF Property Index, Vacancy Rates
One-Third of San Francisco/Bay Area Office Leases Set to Expire by 2026, Marking a Pivotal Period for the Market
Between the second half of 2024 and Q2 2025, approximately 27.0% of current office leases in the San Francisco and Bay Area markets are set to expire. An additional 6.0% will come up for renewal in the second half of 2026, meaning one-third of today’s leases could soon require future space decisions. Of the largest leases not yet renewed and set to expire from July 2024 through Q2 2026, a significant amount of TAMI companies top the list. Among them are Google’s 403,415-square-foot lease at 345 Spear Street in San Francisco as well as several leases from Apple in the Bay Area including 286,000 square feet in North San Jose and 274,288 square feet in Sunnyvale/Cupertino. While the law firm Orrick recently renewed its lease at 405 Howard Street in San Francisco, its lease at 22 4th Street in Yerba Buena, signed in 2015 and expiring in 2025, is approaching, according to CompStak’s data.
“>San Francisco/Bay Area, Office Lease Expirations
The Average Concession Ratio Rose for Five Consecutive Quarters in San Francisco and the Bay Area
San Francisco and the Bay Area’s average ratio of concessions to the total deal value (defined as the value of the free-rent period plus tenant improvement allowance over the total rent paid) reached a new post-COVID peak in Q2 2024 and now has remained above the 2018-2019 average for 10 straight quarters. The most recent average of 11.5% is up 290 basis points from the pre-COVID average but is notably below the gateway market overall average of 12.9%.
Average Concession Ratios, San Francisco and the Bay Area
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