https://www.cnbc.com/2024/07/08/san-franciscos-real-estate-slide-continues-as-office-vacancies-peak.html Skip Navigation logo * watchlive logo Markets * Pre-Markets * U.S. Markets * Currencies * Cryptocurrency * Futures & Commodities * Bonds * Funds & ETFs Business * Economy * Finance * Health & Science * Media * Real Estate * Energy * Climate * Transportation * Industrials * Retail * Wealth * Sports * Life * Small Business Investing * Personal Finance * Fintech * Financial Advisors * Options Action * ETF Street * Buffett Archive * Earnings * Trader Talk Tech * Cybersecurity * Enterprise * Internet * Media * Mobile * Social Media * CNBC Disruptor 50 * Tech Guide Politics * White House * Policy * Defense * Congress * Equity and Opportunity CNBC TV * Live TV * Live Audio * Business Day Shows * Entertainment Shows * Full Episodes * Latest Video * Top Video * CEO Interviews * CNBC Documentaries * CNBC Podcasts * CNBC World * Digital Originals * Live TV Schedule Watchlist * Trust Portfolio * Analysis * Trade Alerts * Meeting Videos * Homestretch * Jim's Columns * Education * Subscribe * Sign In * Pro News * Pro Live * Full Episodes * Stock Screener * Market Forecast * Options Investing * Chart Investing * Subscribe * Sign In Menu * Make It * select + ALL SELECT + Credit Cards + Loans + Banking + Mortgages + Insurance + Credit Monitoring + Personal Finance + Small Business + Taxes + Help for Low Credit Scores + Investing + SELECT + All Credit Cards + Find the Credit Card for You + Best Credit Cards + Best Rewards Credit Cards + Best Travel Credit Cards + Best 0% APR Credit Cards + Best Balance Transfer Credit Cards + Best Cash Back Credit Cards + Best Credit Card Welcome Bonuses + Best Credit Cards to Build Credit + SELECT + All Loans + Find the Best Personal Loan for You + Best Personal Loans + Best Debt Consolidation Loans + Best Loans to Refinance Credit Card Debt + Best Loans with Fast Funding + Best Small Personal Loans + Best Large Personal Loans + Best Personal Loans to Apply Online + Best Student Loan Refinance + SELECT + All Banking + Find the Savings Account for You + Best High Yield Savings Accounts + Best Big Bank Savings Accounts + Best Big Bank Checking Accounts + Best No Fee Checking Accounts + No Overdraft Fee Checking Accounts + Best Checking Account Bonuses + Best Money Market Accounts + Best CDs + Best Credit Unions + SELECT + All Mortgages + Best Mortgages + Best Mortgages for Small Down Payment + Best Mortgages for No Down Payment + Best Mortgages with No Origination Fee + Best Mortgages for Average Credit Score + Adjustable Rate Mortgages + Affording a Mortgage + SELECT + All Insurance + Best Life Insurance + Best Homeowners Insurance + Best Renters Insurance + Best Car Insurance + Travel Insurance + SELECT + All Credit Monitoring + Best Credit Monitoring Services + Best Identity Theft Protection + How to Boost Your Credit Score + Credit Repair Services + SELECT + All Personal Finance + Best Budgeting Apps + Best Expense Tracker Apps + Best Money Transfer Apps + Best Resale Apps and Sites + Buy Now Pay Later (BNPL) Apps + Best Debt Relief + SELECT + All Small Business + Best Small Business Savings Accounts + Best Small Business Checking Accounts + Best Credit Cards for Small Business + Best Small Business Loans + Best Tax Software for Small Business + SELECT + All Taxes + Filing For Free + Best Tax Software + Best Tax Software for Small Businesses + Tax Refunds + Tax Brackets + Tax Tips + Tax By State + Tax Payment Plans + SELECT + All Help for Low Credit Scores + Best Credit Cards for Bad Credit + Best Personal Loans for Bad Credit + Best Debt Consolidation Loans for Bad Credit + Personal Loans if You Don't Have Credit + Best Credit Cards for Building Credit + Personal Loans for 580 Credit Score or Lower + Personal Loans for 670 Credit Score or Lower + Best Mortgages for Bad Credit + Best Hardship Loans + How to Boost Your Credit Score + SELECT + All Investing + Best IRA Accounts + Best Roth IRA Accounts + Best Investing Apps + Best Free Stock Trading Platforms + Best Robo-Advisors + Index Funds + Mutual Funds + ETFs + Bonds * USA * INTL * watchlive Search quotes, news & videos Watchlist SIGN IN logo Markets Business Investing Tech Politics CNBC TV Watchlist Menu Tech San Francisco's AI boom can't stop real estate slide, as office vacancies reach new record Published Mon, Jul 8 20244:49 PM EDTUpdated An Hour Ago thumbnail Ari Levy@levynews thumbnail Jordan Novet@jordannovet WATCH LIVE Key Points * Office vacancies in San Francisco hit another record in the second quarter, and rent prices fell to their lowest since 2015, according to Cushman & Wakefield. * San Francisco is benefiting from the artificial intelligence boom, with OpenAI, Anthropic and Scale AI signing big leases in the past year. * But the post-Covid trend toward hybrid work coupled with mass layoffs across the industry have led to a steady increase in vacancies. Pedestrians near Salesforce Tower in San Francisco, California, on Wednesday, Jan. 25, 2023. Marlena Sloss | Bloomberg | Getty Images Artificial intelligence has been a big boon for San Francisco real estate. But not enough of one to make up for the broader struggle across the market. The vacancy rate for San Francisco office space reached a fresh record of 34.5% in the second quarter, according to a report Monday from commercial real estate firm Cushman & Wakefield. That's up from 33.9% in the first quarter, 28.1% in the same period a year ago and 5% before the pandemic. Meanwhile, the average asking rent dropped to $68.27 per square foot in the quarter, the lowest since late 2015, down from $72.90 a year earlier and a peak of $84.70 in 2020. San Francisco is reeling from the twin challenges of bringing people back to the office after the Covid pandemic and a slowdown in the tech market that's led to mass job cuts across the industry. Tech companies have laid off more than 530,000 employees since the start of 2022, according to the website Layoffs.fyi, with major downsizing at Alphabet, Meta, Amazon, Tesla, Microsoft and Salesforce. Softening the blow of late has been the soaring popularity of generative AI and the decision by fast-growing startups to open large offices in San Francisco. OpenAI, the market leader with a private valuation that's topped $80 billion, announced in October that it was leasing about 500,000 square feet of space in the Mission Bay neighborhood, the biggest office lease in the city since 2018. Robert Sammons, senior research director at Cushman & Wakefield, said OpenAI is continuing to look for more space in the city. Also last year, OpenAI rival Anthropic subleased 230,000 square feet at Slack's headquarters. And in May of this year, Scale AI signed a lease for a reported 170,000 to 180,000 square feet of space in Airbnb's office building. "San Francisco is certainly the center of AI, but AI is not going to save the San Francisco commercial real estate market," Sammons said. "It will help." While richly capitalized AI startups are signing large leases for new space, the bigger trend is that tech companies, law offices and consulting firms are looking to reduce their footprint when existing leases come up, Sammons said, reflecting the widespread move to hybrid work. In many cases, companies are looking to relocate to higher quality space in more desirable parts of the city, because prices have come down and employers need to be near restaurants and shops to get staffers to come back, Sammons added. "The best quality trophy space continues to perform well, because tenants want to be in the best locations with the best amenities around them," Sammons said. Some of the city's top employers, including Salesforce, Uber, Visa and Wells Fargo, have brought employees back to offices for part of the week. That's helped in the financial district, where the vacancy rate is still 34.2% on the north side and 32.7% on the south side at the end of the quarter. In SoMa, which historically was a popular area for venture-backed startups, the vacancy rate is almost 50%. SoMa is further away from mass transit options and has also been hurt by large retail departures. Vacant office space across San Francisco for the quarter totaled 29.6 million square feet, Cushman & Wakefield said. The firm said in its report that there are positive signs in the market, with absorption poised to improve in the second half and office job numbers stabilizing following a steep drop-off. But Sammons said it looks like there's more room for rents to fall and for vacancies to rise. Uncertainty surrounding the upcoming presidential election may be a factor delaying new leases, he said. "Sometimes tenants postpone making decisions when there are major elections," he said. WATCH: Commercial real estate vacancies in San Francisco are at an all-time high Commercial real estate vacancies in San Francisco are at an all-time high watch now VIDEO2:1502:15 Commercial real estate vacancies in San Francisco are at an all-time high Squawk on the Street CNBC logo * * * * * * * * Subscribe to CNBC PRO * Subscribe to Investing Club * Licensing & Reprints * CNBC Councils * Select Personal Finance * CNBC on Peacock * Join the CNBC Panel * Supply Chain Values * Select Shopping * Closed Captioning * Digital Products * News Releases * Internships * Corrections * About CNBC * Ad Choices * Site Map * Podcasts * Careers * Help * Contact * News Tips Got a confidential news tip? We want to hear from you. Get In Touch * CNBC Newsletters Sign up for free newsletters and get more CNBC delivered to your inbox Sign Up Now Get this delivered to your inbox, and more info about our products and services. * Advertise With Us Please Contact Us * Privacy Policy * California Consumer Privacy Act (CCPA) Opt-Out Icon * CA Notice * Terms of Service (c) 2024 CNBC LLC. All Rights Reserved. A Division of NBCUniversal Data is a real-time snapshot *Data is delayed at least 15 minutes. Global Business and Financial News, Stock Quotes, and Market Data and Analysis. Market Data Terms of Use and Disclaimers Data also provided byReuters logo