SAN JOSE — Downtown San Jose and San Francisco continue to suffer from sky-high vacancies that have left offices more than one-third empty despite microscopic improvements in the commercial real estate sector.
The grim statistics were contained in reports issued by Savills, a commercial real estate firm that closely tracks the office markets in downtown districts nationwide.
The uneven return to the office in the wake of the coronavirus has jolted urban cores in a big way, leaving behind a forbidding landscape of empty spaces, feeble rents, slumping property values, and — particularly in San Francisco — waves of foreclosures of offices, retail and hotel properties.
Here are the details for office vacancies in downtown San Jose and San Francisco for the January-through-March first quarter of 2024, as reported by Savills:
— Downtown San Jose had a 35.6% office vacancy rate in the first quarter, compared with 35.7% in the fourth quarter of 2023.
— San Francisco had an office vacancy level of 36.3% in the 2024 first quarter, compared with 36.7% in the 2023 fourth quarter.
Savills didn’t survey the downtown Oakland market. Colliers, a commercial real estate firm, is tracking the downtown Oakland sector.
Downtown Oakland’s office vacancy rate was 19.7% in the first quarter, slightly worse than the 19.6% vacancy level in the fourth quarter of 2023, according to Colliers.
Owners of office buildings have managed to keep rental rates relatively stable in both downtown San Jose and San Francisco.
But building owners might find it tough to keep that trend in place.
In San Francisco, the value of One Market Plaza has plunged 29%. Another office building on Market Street suffered a 90% nosedive in its value when it sold recently.
Office building values have also plummeted in downtown San Jose.
In December 2023, the purchase of the 303 Almaden Boulevard office tower for $23.8 million represented a 70% decline in its value compared with the last time the highrise sold, in 2017.
In February 2024, the two-tower office complex at the corner of North Market Street and West St. John Street was bought for $34.2 million. That price was 77% below the building’s value the last time it was sold a few years ago.
By happenstance, the buyers for both of the downtown San Jose office complexes were groups led by George Mersho, chief executive officer of the Shoe Palace.
The fundamentals that helped office prices and rents rocket to previously undreamt-of heights in downtown San Jose began to crumble in 2020 with the coronavirus outbreak and the government-ordered business shutdowns to combat the spread of the deadly virus.
Even worse, tech companies starting in 2022 began to chop Bay Area jobs in big numbers, a downsizing that also curbed their respective appetites for office space.
Office vacancies rose and rents flattened, unsettling trends that helped to undermine office building values throughout the Bay Area.