Vacancy rate still rising for office spaces on the Peninsula

But despite the pandemic-induced skewing of supply-and-demand ratios, office rents have remained mostly stable, with landlords largely sticking to their pre-COVID rates.

“There’s a bit of a wait-and-see mentality,” said Konrad Knutsen, a CBRE associate director. “If there’s some mitigation of the spread of the virus, I’m confident that we will return — whatever that new normal is — to a more normal office utilization than what we see currently.”

Landlords to this point have preferred to offer perks to avoid lowering rates, like rent abatement or allowances for tenant expenses, according to the report, which notes that rent could eventually be forced down as power shifts “back into the hands of tenants in what has historically been a landlord-driven market.”

“Clearly [the virus] is holding the majority of the cards, and we just need to see where we end up on the back side of this slope,” said Knutsen. “Right now it’s just too early to tell.”

The last time vacancies were this high was between 2001 and 2003 after the dot-com crash, Knutsen said, adding that unlike then, when vacancies were created by belly-up ventures, companies presently are just trying to ride things out.

And despite the ever-rising vacancies, including a net 211,253 square feet of office space becoming unused in this year’s second quarter, leasing activity is picking up. 

While this year’s first quarter saw 336,972 square feet leased, the second quarter more than doubled that with 841,296 square feet leased, according to the report.

The technology industry, though generally most likely to switch to remote work, comprised the largest portion of leasing activity this quarter at 33%, with the automotive industry right behind at 27%, life sciences at 15% and financial services at 9%.

Automotive leases include those to American electric vehicle manufacturer Tesla and Rivian, according to CBRE Field Research Analyst Shane Forker.

Industrial vacancies on the Peninsula, though less so, are also climbing, up to 4.9% compared to 1% in 2019. 

Of the Peninsula cities surveyed, South San Francisco had the highest vacancy rate at 19.4%. Overall, the Peninsula’s office space vacancy rates are still well below those of San Francisco, where vacancy has risen to just above 20%, according to a Cushman & Wakefield report. 

corey@smdailyjournal.com

(650) 344-5200, ext. 105