The work-from-home trend created during the pandemic is proving to be somewhat sticky, which may be good for employees but bad for trying to fill the Peninsula’s open office spaces.
Biotech is booming, however, and at least one expert sees the market for offices has nowhere else to go but up.
“I am hopeful that the commercial market has hit a bottom and that these are signals that employers in San Mateo County are making space for employees to come back to the office,” said Shannon Chircop, a commercial real estate advisor for Cushman & Wakefield, a real estate services firm.
A Cushman & Wakefield report from the first quarter of 2023 shows office space and research and development spaces reached a 14.1% vacancy rate combined. Of that, 98% of the vacancies were office spaces. The first quarter finished with 660,000 square feet of new office spaces being leased, a low that hasn’t been seen since the fourth quarter of 2020.
Pre-pandemic vacancy rates in downtown Redwood City were closer to 5%, now it’s closer to 20%, Chircop said. She added that once that number approaches 25% consistently it is a cause for concern. For now, she said it is hard to paint the entire picture with a snapshot.
“Many companies are still figuring out what the office setting should look like as pressure to bring employees back to the office continues to increase,” said Chircop, adding companies like Lyft are beginning to reel employees back into the office.
The influx of available office spaces has caused average rental prices to drop by 42 cents a square foot, from $6.87 to $6.45, since the fourth quarter of 2022, according to Cushman & Wakefield. The high inventory and lowered prices gives potential tenants still in the market the options to seek the best locations and best amenities for employees, Chircop said.
However, life sciences has taken some of the slack. Results from a Coldwell Banker Richard Ellis report showed the life science sector is growing. Since the first quarter of 2020 the sector’s job market rose from 127,270 jobs to 152,980, or a 20% increase.
There is also more interest in subleases. More than 250,000 square feet of office space was subleased in the first quarter. The largest sublease in the county was to Roblox, an online game creator platform, from Guidewire in San Mateo, according to Cushman & Wakefield.
Recommended for you
Chircop speculates the increase in subleases is a sign that employers are beginning to return to the office.
However, new leasing activity dropped with 664,652 square feet in the first quarter, a new low since the fourth quarter of 2020. More than 1.5 million square feet of office space is under construction in San Mateo County, and 81% of the total square footage is expected in 2023, including a portion of YouTube’s campus expansion in San Bruno, according to Cushman & Wakefield.
Those numbers concern Greg Terry, Compass real estate broker and agent, who said dozens of office spaces coming into the market could continue to saturate it if employees don’t return.
“Here is the thing to consider, office space and commercial space is basically a ship moving in the ocean and when you kill the power there is still movement with that ship,” Terry said. “We built our society to support the office work environment so all those businesses supported by office employees are affected by the stay-at-home model.”
Burlingame has the most vacancies with more than 3.1 million square feet of office space available and South San Francisco has 1.9 million square feet of available space, according to Cushman & Wakefield.
The life science vacancy rate rose to 8.4%, up 210-base points from the fourth quarter, a number that grew largely to 725,000 square feet of conversion space coming into the market, according to CBRE.
“Life science is growing and the basic office will be supporting it,” said Terry who added the state of the economy will rely heavily on employees returning to the office.
(650) 344-5200 ext. 105
(1) comment
Tell ya what... I need an office space. I'm sick of working from home, I'd like to work with people. Make office space available for small entrepreneurs and concert office space in buildings to daycare. You do that... You will get people working from home into their offices with their kids.
Welcome to the discussion.
Log In
Keep the discussion civilized. Absolutely NO personal attacks or insults directed toward writers, nor others who make comments.
Keep it clean. Please avoid obscene, vulgar, lewd, racist or sexually-oriented language.
Don't threaten. Threats of harming another person will not be tolerated.
Be truthful. Don't knowingly lie about anyone or anything.
Be proactive. Use the 'Report' link on each comment to let us know of abusive posts.
PLEASE TURN OFF YOUR CAPS LOCK.
Anyone violating these rules will be issued a warning. After the warning, comment privileges can be revoked.