San Francisco's office market has continued to deteriorate this year. According to the fourth quarter report from Marcus & Millichap, office rents will fall 9% to 54.90 per square foot. This exceeds the 8.5% mean rate of rent decline last year. While the metrics don't look great, the report was optimistic that a full recovery would come to the market.

First, the bad news. The 9% dip in office rents stems from an onslaught of new office deliveries. This year, the office inventory has grown by 3.3% with 5.7 million square feet of new stocked completed. While construction is slowing, there is still a pretty substantial pipeline product underway.

The new construction activity is also putting upward pressure on the market's vacancy rate. In the fourth quarter, it will increase another 510 basis points to 20.5%. Last year, vacancy increased more than 600 basis points, and it didn't slow in 2021.