SAN JOSE — The Bay Area’s three largest downtown districts suffered sky-high levels of empty offices in the third quarter of 2023 even as tech companies slashed their workplace footprints, a new real estate report shows.
Office vacancies hit sky-high levels in the downtown districts of the Bay Area’s three largest cities at a time when companies continue to slash the amount of space they require, a new report has disclosed.
Downtown San Jose, downtown Oakland and downtown San Francisco all are reporting office vacancy levels that are at or near all-time record highs, according to preliminary reports that CBRE, a commercial real estate firm, provided to this news organization.
The greatly elevated amounts of empty office space in the Bay Area’s three largest downtown districts offer a harsh reminder of the ongoing economic fallout from the coronavirus-linked business shutdowns of 2020 and 2021.
Despite the grim current picture for office space in the Bay Area, CBRE executives are seeing some signs of improvement in at least some downtown office markets.
“Tenant demand increased again this quarter, which was the most new organic demand in Oakland since 2020 as companies implement office mandates,” said Scott Greenwood, a CBRE senior vice president.
These are the office vacancy rates — the amount of empty office space directly offered by landlords — for the downtown areas of San Jose, Oakland and San Francisco, according to the preliminary reports from CBRE:
The figures show the vacancy rate for the July-through-September third quarter of 2023:
— San Jose had a 31.5% downtown vacancy rate in the third quarter, up from 26.6% in the second quarter of 2023.
— Oakland’s downtown office vacancy rate was 29.7% in the third quarter, an increase from the 28.5% vacancy rate in the second quarter.
— San Francisco’s downtown office vacancy rate was 33.9% in the third quarter, up from 31.6% in the second quarter of 2023.
It’s unclear what will help downtown San Jose start to creep back toward the road to recovery.
“One big lease will make all the difference for downtown San Jose,” said Mark Ritchie, president of San Jose-based Ritchie Commercial, a real estate firm. “A big lease in the Jay Paul Tower at 200 Park Avenue would be huge.”
When sublease space is taken into account, the picture regarding the empty offices is even more grim.
Here are the levels of available office space — the amount of directly available vacant space combined with the sublease space for the third quarter compared with the second quarter.
— Downtown San Jose, 32.7% availability rate in the third quarter, up from 27.8% in the second quarter
— Downtown Oakland, 33.4% third-quarter availability rate, up from a second-quarter rate of 32.3%
— Downtown San Francisco, 37.5% in the third quarter, up from 34.2% in the second quarter.
“The Oakland office market still has a long road ahead to recovery, with several more quarters of negative absorption as tenants right-size,” Greenwood said. “But we’re starting to see positive signs for activity into 2024.”