Same Office Supply and Demand Dilemma with No Great Surprises in Q4

Vacancy is expected to stay low, and supply and demand will remain unbalanced until 2022 or 2023.

SAN FRANCISCO—Office vacancy ticked up 40 basis points in the fourth quarter to 3.2%, while availability increased 180 basis points to 9.6%, according to a fourth quarter report by Newmark Knight Frank. However, demand also increased and still slightly outpaces supply at 8.1 million square feet.

While absorption was positive at 526,200 square feet, this amount included Facebook moving into 763,102 square feet at 250 Howard St., which is why there was an increase in vacancy despite positive absorption. Of the 3.3 million square feet currently under construction, 84% has been preleased or is rumored to be in lease. Another 4.4 million square feet are expected to break ground in 2020, and those projects are already 41.4% pre-leased or are rumored to be in lease. While some companies such as Uber are putting large blocks of sublease space on the market in preparation for a move into new locations, often that space is not available for a new tenant to move into for a year or more, according to the NKF report.