Reports: Slowdown in San Francisco Peninsula, East Bay Office Markets

CBRE, San Francisco, East Bay, Bay Area, San Mateo County, Alameda County, Contra Costa County, Pac-12 Conference, San Ramon, Bishop Ranch
Courtesy of Amogh Manjunath

By Kate Snyder

As the new year starts, a pair of reports recently released by CBRE shows a picture of how the Bay Area office markets ended 2022. According to San Francisco Peninsula Office Figures and I-680 Corridor Office Figures, the office markets on the San Francisco peninsula and in the East Bay experienced a slowdown in the second half of 2022. The slowdown was marked by an overall negative net absorption for both regions, despite some increased leasing activity.

On the San Francisco Peninsula, which primarily consists of San Mateo County, the total resident employment had a 4.8 percent increase at the close of 2022 compared to the close of 2021, according to the report. Data shows that 15,800 employed peninsula residents commute out of the county, and the unemployment rate for the resident population in 2022’s fourth quarter remained stagnant at 2.3 percent. In total, the peninsula is home to approximately 744,400 residents with a labor force of 455,400.

Net absorption in the fourth quarter totaled negative 327,747 square feet, bringing the year end total to negative 544,793 square feet, according to the report. Leasing activity and demand continued to fluctuate with both direct and sublease availability on the rise as remote and hybrid work continued to be an obstacle for office occupancy. The office market also recorded 522,375 square feet of gross leasing volume during that time, which is an 18 percent decline from the year before. New leases accounted for approximately 84 percent of the quarter’s leasing volume with many tenants hesitant to make long-term or large commitments, but office tenant demand ended the year with more than 1.4 million square feet of requirements throughout the Peninsula.

“As companies exhibited some caution leading into 2023 and a high probability of a global recession the current macroeconomic uncertainty has preempted some corporate layoffs, resulting in a pull-back in office demand,” the report states.

In the East Bay, which is made up of both Alameda and Contra Costa counties, are 2.8 million local residents and a labor force of 1.4 million, according to the East Bay report. Ending December 2022, the total resident employment was 1.4 million, representing an increase of nearly 32,100 jobs from the same time last year. 

The I-680 Corridor saw 438,278 square feet of negative net absorption during the fourth quarter, which the report attributes largely to big blocks of vacant space coming to the market. Despite having a significant amount of negative absorption in 2022, this market had several large leases signed throughout the year.

The largest notable lease signed in this area for the fourth quarter, according to the report, was the Pac-12 Conference moving its San Francisco production studio to San Ramon. The Conference signed a new lease with Bishop Ranch, a 600-acre mixed-use community with a range of Class A workplaces. The new 42,000 square foot space will be at BR15, which is located at several addresses from 12647 to 12677 Alcosta Blvd. and totals 333,255 square feet. Pac-12 is slated to move in during the coming summer. 

Office tenant demand remained below pre-COVID levels, totaling one million square feet of space requirements, and similar to the previous quarter, tenant requirements continued to focus on built-out second generation space primarily in high-quality Class A space. When paired with desirable on/off site amenities, premier Class A office space continued to attract leasing activity through 2022. Conversely, lower quality office space saw reductions in leasing activity and asking rates, causing what the report calls “the largest stratification between classes in recent years.”

Throughout the first half of 2022, the I-680 Corridor saw a gradual reduction in office sublease availability, ending the second quarter with 1.4 million square feet of sublease space on the market. In the second half of 2022, nearly 500,000 square feet of sublease space came to the market, which brought the year-end total to 1.9 million square feet. At the same time, during the second half of 2022, more top-tier Class A office space hit the market, which resulted in increased asking rents despite the increase in vacancy and availability. 

“Large corporations, and their changing office utilization rates, continued to play a significant role in this market,” the report states. “Corporate space optimization resulted in rising availability and vacancy rates and overall negative net absorption.”

West Coast Commercial Real Estate News