San Francisco has a lot of open office space. The COVID reckoning hasn't begun in earnest yet.

As we outlined yesterday, there is over 17 million square feet of vacant office space now spread across San Francisco, which is up from around 16 million square feet of vacant space three months ago and as compared to under 5 million square feet of vacant space at the start of last year.

For context, the 1,070-foot-tall Salesforce/Transbay tower at First and Mission, which is the tallest building in San Francisco, contains 1.35 million square feet of office space spread across 59 floors.

Salesforce-Tower-Equivalency-17M-Square-Feet-600.png

A commenter named Dave provides this analysis:

This begs the question - what to do with all that empty office space. The average annual net absorption for the boom decade just ended was what? About 1.5 million feet? It would take 11 years at that absorption pace to fill the space. However, going forward it's hard to see SF ever averaging that kind of net absorption again over a prolonged period. So it could take decades to fill the 17 million feet of empty space.

This does not bode well for the owners of these buildings - generally. Some of the space can be converted to life sciences or residential. But most of it cannot. Already the Oceanwide development has been abandoned as has 88 Bluxome - and the to follow second phase.

Mission Rock is going forward but it had already started construction and it was early enough to tweak the design and make that space aimed towards life-science tenants. Dropbox abandoned its SF headquarters but that building(s) had been designed to accommodate life science space and a small potion of DropBox's sublease was picked up by a life science company. Life science may be the only option for major new SF "office" development Hence the Power Plant project is now planned/designed as life science space.

In terms of the life sciences and biotech SF is at a disadvantage both to SSF/the Peninsula and Berkeley/Emeryville/Oakland - the latter cities are making a big play to attract life science/biotech firms. SF needs to not only clean itself up but change its business tax policy if it hopes to capture even a small portion of the life science/biotech play.

The only office development that might pan out in SF is small, boutique projects. 50K or so Hence the Union Square condo conversion will include a small amount of said boutique office space.

As to large office developments (like the still empty 3M tower) not only is there not a need/demand for more space, there is no way to determine the potential price/square foot that future space might command. Today it's $73.24 but how long before landlords losing significant amounts of money on these empty towers make large cuts in the asking price per square foot? Meaning future projects could actually be financially untenable if rents take a big hit.

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