New leasing activity plunged 71 percent from 2019, according to real estate brokerage Cushman & Wakefield. At 2.2 million square feet, down from 7.7 million, it is the lowest level on record dating to the 1990s.
The pandemic destroyed a nearly decade-long real estate boom, forcing most office workers to stay home and emptying once-bustling downtown streets. Many companies such as Twitter and Dropbox sought to downsize through sublease listings, which now account for more than half of the 16.7 percent vacancy rate, the highest level since 2005, according to Cushman & Wakefield.
Almost no new large leases were completed in 2020. The largest was signed by Vir, a biotech company researching COVID-19, which took 133,896 square feet at Dropbox's 1800 Owens St. headquarters in Mission Bay. The artificial intelligence nonprofit OpenAI expanded to 96,000 square feet at 575 Florida St. "It just was a very difficult year, with everything frozen in place," said Robert Sammons, Cushman & Wakefield senior director of Bay Area research.
Office projects under construction, which in recent years were often fully leased before completed, saw no leases signed last year.
Brookfield Properties' partially built office tower at the 5M project and its Pier 70 development are still seeking tenants. Brookfield is partnering with Hearst Corp., owner of The Chronicle, on the 5M project. Brookfield declined to comment.
Oceanwide Center, planned to be San Francisco's second tallest tower, suspended construction and failed to sell to investment firm Hony Capital after months of delays, according to a public filing last week from Chinese owner Oceanwide Holdings.
A slew of new offices planned in the central South of Market area have yet to move forward, with Pinterest canceling a 490,000-square-foot lease in one of them. Owner Alexandria Real Estate Equities said the project, 88 Bluxome, could potentially be build as lab space for biotech tenants, which is one of the few positive sectors in the economy.
Sammons said it would be a logical change, because the projects are not far from Mission Bay, the city's hub for life sciences.
Despite devastation in much of the economy, venture capital in San Francisco set an annual record of $27.2 billion last year, according to research firm PitchBook, a sign of resiliency for the tech sector. PitchBook said initial public offerings in the Bay Area also set a record with 67, led by Airbnb, which saw its business falter and then recover during the pandemic.
But it's unclear whether new funding will translate directly to office demand as it has in the past, said Alexander Quinn, director of research for Northern California at JLL, a real estate brokerage.
"We're in such an unusual time. Until we have any semblance of control of the coronavirus, we're going to be struggling, especially in the office market," he said.
Major tech employers including Salesforce, Uber and Facebook don't plan to have office workers return until at least the summer. Google has pushed back the return until September, and could have workers at the office only three days a week, which could further hurt local retail and restaurant spending and transit fare collection.
At the same time, Google is still pursuing major expansion plans in San Jose, as well as Sunnyvale and Mountain View. It signed a relatively small lease of 42,000 square feet last year in San Francisco.
"The big tech players will be interesting to watch, to see what they do in the city and what they do in the rest of the Bay Area," Sammons said. "They certainly haven't given up on the Bay Area."
Office rents dropped 9.6 percent over the past year to $75.11 per square foot annually, according to Cushman & Wakefield, and apartment rents plunged by more than 24 percent, according to Zumper. That discount could entice some companies to expand and residents to stay or move back eventually, Sammons said.
He expects the market to recover by 2022, and it could happen sooner if there is additional federal stimulus for cities and states, and if there is a successful vaccine distribution. The first step will be for nonessential office workers to return, a time frame that is unclear after San Francisco indefinitely extended its stay-at-home orders last week.
"There are a lot of unknowns. It's in a wait-and-see mode," Sammons said.
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