By Meghan Hall
The San Francisco office market has been flipped on its head as companies have pushed major commercial real estate moves down the line or elected to place space on the market in the hopes of recouping rent costs. A recent market snapshot of San Francisco released by brokerage firm Newmark at the end of October shows that sublease space across the city has increased greatly over October alone, with companies large and small placing 762,000 square feet on the market.
Many of the new subleases hitting the market are from solid credit tenants who are simply looking for a way to make use of the offices they currently are not willing or able to use themselves.
“If you have a bunch of companies, and they’re not there; they’re working remotely. If they put the space on the market as a sublease space because they’re not using it, it is a way of taking it off the books for a little bit,” said Newmark San Francisco Research Director Andrea Arata in a third quarter interview with The Registry. “But it doesn’t mean that all of these companies are actually in a dire situation and that they need to shed the space.”
Since March of 2020, there have been 138 net new subleases on the market, an increase of 177 percent. In total, these subleases account for 3.8 million square feet of space, a 130 percent increase. Since November of 2019, 156 net new subleases are available, totaling 5.34 million square feet of space.
In October, 22 new subleases added more than 762,000 square feet of space to the market. Stripe listed 295,333 square feet for sublease, while PayPal placed 93,466 square feet on the market. Mozilla and Autodesk have put 42,721 square feet and 34,000 square feet on the market, respectively. Sun Basket listed 23,250 square feet, and Rally Health listed 35,726 square feet.
In total, there is 8.94 million square feet of sublease space available, which accounts for 10.5 percent of the market. Newmark indicates that the average size of space available comes in at 31,424 square feet and the average sublease term is around 42 months.
A number of new direct availabilities have also hit the market since the beginning of October; together, they total 313,713 square feet. The biggest block of space—just under 83,000 square feet—became available at 1550 Bryant at the beginning of October. The next largest availability is 78,491 square feet at 225 Bush.
As more space becomes available, Newmark and others are watching how companies will continue to navigate the market. BridgeBio is expected to sublease two floors totaling 52,000 square feet from Dropbox at the Exchange in the near future, shrinking the file hosting firm’s footprint in the building to less than 100,000 square feet.
Gap is marketing 280,000 square feet at 550 Terry Francois and is considering a mix of both office and lab users to fill its space. Conversely, Fibrogen has a 300,000 square foot requirement for lab space. And in what could be another potential big move, Wells Fargo is also considering disposing of 800,000 square feet in downtown San Francisco.
There are a few bright spots for San Francisco. $2.5 billion in venture capital funding was raised by San Francisco-headquartered companies since October 1st, and 2020 funding is on pace to exceed funding in both 2018 and 2019. Chime raised $534 million in funding, while Uber Freight garnered $200 million. Industry experts are also looking at the IPO window heading into the end of the year.
Additionally, notes Newmark, tech layoffs are slowing and companies are looking to increase headcount. Deal volume remains limited, as tenants are hesitant to make big real estate decisions without flexibility, but inquiries for space, tours, and signed LOIs are all on the rise. While many of these metrics have yet to translate into solid deals, positive trends could be a sign that the industry is regaining some of its momentum.