In the city of San Francisco, both the commercial and residential vacancy rates have hit record highs. This has resulted in the abandonment of many large tech buildings, including Google’s massive 1.4-million-square-foot office space that remains on the market for sublease. Other notable tech companies like Meta and Roku are also attempting to sell their available office spaces. Intel even listed its 505,000-square-foot office earlier this year. However, despite their efforts, it’s been difficult to find buyers for these properties.
“As a hybrid-first company, we are continuously evaluating and optimizing our use of space to create more dynamic work environments for our employees while also reducing costs,” said Addy Burr from Intel Corporation Communication. Unfortunately, the demand seems to be lacking. Craig Petersen from Kidder Mathews mentioned, “Big companies are putting their spaces on the market, but there is very little interest. We are seeing more interest in smaller office markets.”
In a recent second-quarter report by Savills, it was revealed that office availability in Silicon Valley has significantly increased due to companies returning excess space. The report stated, “With the technology sector experiencing a correction, there is a surge in office availability in Silicon Valley, and it is expected to continue increasing as the return-to-office rates in this area lag behind the rest of the country, despite prominent corporate announcements.” Leasing activity has remained significantly low, down 35% since the previous quarter, and down 52% compared to last year.
Prospective tenants are puzzled by the fact that despite the increase in availability and vacancy levels, rental prices have remained unchanged. Michael Soto, head of office research at Savills, explained, “Usually, when availability and vacancy levels rise, rent prices decrease. However, rents have remained high as landlords are offering significant concessions while keeping face rents unchanged. Additionally, some landlords are unable to reduce rents due to contractual obligations with lenders.”
Furthermore, not only are companies trying to offload office space, but they have also halted major construction projects that would have transformed Silicon Valley. For instance, Google has suspended its Downtown West project in San Jose, which would have included housing, offices, shops, restaurants, community centers, and parks. This decision was influenced by the slow return to office work following the COVID-19 pandemic. “All new developments were put on hold when the pandemic hit, and they are not resuming due to the high office vacancy rates, not just Google’s project,” Petersen explained. “Starting a project with such a high office vacancy would be impractical.”
Overall, the current situation in San Francisco and Silicon Valley reveals a challenging climate for selling office spaces, with high vacancy rates, stagnant rent prices, and halted construction projects.
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