Office Space to Remain Scarce Through 2020

NKF’s Arata says the office market is slowing down because there are few viable options for tenants.

SAN FRANCISCO—The combination of a vacancy rate of 3.9%, not seen since the dot.com era, with the highest tenant demand in seven years has resulted in an extremely competitive office market, according to Newmark Knight Frank’s third quarter San Francisco office research report. Currently, tenant demand of 7.6 million square feet outpaces availability at 7.4 million square feet, mainly in the large user category. Despite the low vacancy rate, absorption is anticipated to remain strong for the remainder of the year.

The 22 tenants seeking blocks of space of 100,000 square feet or greater make up 3.2 million square feet of the current demand, but there are currently only 10 existing buildings with available blocks greater than 100,000 square feet, many of which have leases pending. Large block pricing has increased to the low $90s per square foot, which is 12 to 15% higher than the market average.