SAN JOSE — The market for Bay Area office space remains feeble, battered by brutally high vacancy levels — but the hunger by tenants to lease offices is starting to surge, new commercial real estate reports show.
Empty office spaces remained at or near record levels in the Bay Area’s four primary markets during the January-through-March first quarter of 2024, according to a new report released by CBRE, a commercial real estate firm.
The office markets in the South Bay, the East Bay’s Oakland-Emeryville region, San Mateo County and San Francisco continue to suffer from economic maladies in the wake of the coronavirus pandemic.
Both office vacancy and availability rates remained sky-high in the first quarter of 2024, according to the CBRE report. The vacancy rate measures the space being offered for lease by property owners. The availability rate measures the combined amount of space that landlords offer directly plus the space tenants offer through subleases.
Here is how the four primary Bay Area office markets performed during the first quarter of 2024 and how they compared with the October-through-December fourth quarter of 2023:
— The South Bay office vacancy rate was 19% in the first quarter, worse than the 18.6% in the fourth quarter. The availability rate was 20.6% in the first quarter, an improvement from 21.1% in the fourth quarter.
— The East Bay market that includes Oakland, Emeryville, Berkeley, Alameda, Richmond and San Leandro had a first-quarter vacancy rate of 21.2%, which was worse than the fourth-quarter vacancy level of 20.6%. The first-quarter availability rate was 24.8, an increase from 23.8% in the fourth quarter.
— San Mateo County’s first-quarter vacancy rate was 21.7%, up from 21.5% in the fourth quarter. The availability rate was 23.6% in the first quarter, an improvement from 23.8% in the final three months of 2023.
— San Francisco’s office market remains the worst of the group by a wide margin, with well over one-third of the city’s office space empty. The vacancy rate was 36.7% in the first quarter, up from 35.6% in the fourth quarter. The availability rate was 39.1%, up from 38.5% in the fourth quarter.
The biggest hopeful sign for the office markets, however, is that tenants began to scout for office space more actively in these four markets during the first three months of 2024 compared with the final three months of 2023. CBRE measured total demand by the amount of combined square footage that tenants were seeking by the end of March.
“Tenant demand for office and R&D space increased 31.0%” in the South Bay, CBRE stated in its report.
CBRE spotted similar results in other major Bay Area office markets.
In San Francisco, tenants increased their demand for office space by 52% in the first three months of 2024 compared with the final three months of 2023. That was the fastest pace of increase in tenant demand since the first three months of 2020, just before the start of business shutdowns to battle the coronavirus.
In the Oakland-Berkeley-Emeryville area, active tenant requirements for office space increased 28.3% in the first quarter compared with the previous quarter, CBRE reported.
While the improvement in tenant demand is encouraging, experts point out the amount of square footage that companies seek to occupy remains well below the trends before the coronavirus outbreak.
In the South Bay, the active tenant requirements for office space totaled 5.63 million square feet in the first quarter. That was up from the 4.3 million square feet of requirements in the fourth quarter of 2023. But these numbers are both far below the ten-year quarterly average of 7.98 million in tenant requirements in the South Bay.
Nevertheless, CBRE experts are encouraged by the increase by artificial intelligence firms that hunger for office space in the South Bay.
“Recently, there has been an uptick in demand from AI companies and their affiliates” in the South Bay, CBRE reported.
