Office Vacancy Rate in San Francisco Just Hit a New High(socketsite.com)
socketsite.com
Office Vacancy Rate in San Francisco Just Hit a New High
https://socketsite.com/archives/2022/10/enough-empty-office-space-for-over-150000-employees-in-san-francisco.html
12 comments
Office vacancy rate in San Francisco just hit a new high - https://news.ycombinator.com/item?id=33247863 - Oct 2022 (349 comments)
Darn it- sorry Dang for the duplicate post!
It's only going to get worse. Most companies are in the middle of 5- or 10-year leases, and aren't going to renew.
With this in mind, it still shocks me how the building managers in SF I work with have just gotten worse. They're bitter and mean and have made things so much harder for us (rather than being kinder and doing everything they can to retain us).
My point is that it's not nearly as bad as it's going to be, and there's nothing that makes me think it'll get better.
I really hope they turn a lot of these buildings into housing; we could kill two birds with one stone.
With this in mind, it still shocks me how the building managers in SF I work with have just gotten worse. They're bitter and mean and have made things so much harder for us (rather than being kinder and doing everything they can to retain us).
My point is that it's not nearly as bad as it's going to be, and there's nothing that makes me think it'll get better.
I really hope they turn a lot of these buildings into housing; we could kill two birds with one stone.
All the "loft" apartments that everyone used to love were converted industrial, if I remember right. I'm hoping this all leads to some new kind of housing term that isn't normal residential (it's nearly impossible to turn office space into "normal" residential), but is also perfectly fine to call home. If artists and creatives scooped up the brand-new, below market housing in inner cities again, that would be perfect.
curious to know if this will snowball into a market trigger effect in 2023...something like "well if you cant make it here you cant make it anywhere." .
for what its worth one of this epochs Rockefellers, Mike Bloomberg, gave it his best shot this year turning almost every article in his newspaper into a full-throated commandment to return to office spaces immediately, embrace your daily commute, and eschew the perils of pouring coffee from your kitchen only to watch the effort fall upon deaf ears. WeWork and slumlords turned most startups against renting office space entirely, while gas prices and covid basically outed the VPN as the executive bathroom nobody at the company got to use but the C levels until now.
for what its worth one of this epochs Rockefellers, Mike Bloomberg, gave it his best shot this year turning almost every article in his newspaper into a full-throated commandment to return to office spaces immediately, embrace your daily commute, and eschew the perils of pouring coffee from your kitchen only to watch the effort fall upon deaf ears. WeWork and slumlords turned most startups against renting office space entirely, while gas prices and covid basically outed the VPN as the executive bathroom nobody at the company got to use but the C levels until now.
Not a surprise there. I was talking to a CEO friend of mine whose company had just leased a huge office right before the pandemic for five years. They closed all their small offices around town and moved everyone early during the pandemic, which means most people have never seen the new building. Their stuff is just in boxes on desks. They can't get out of the lease early, so for now the leadership shows up once a week for meetings and that's about it.
But in about three years they will ditch the lease, as will many other companies in similar situations. This is just the beginning.
On the plus side, here in Cupertino there has been an eternal debate what to do with the empty land the old mall used to sit on. They wanted to build 3M square feet of office space, but now they probably won't do that, which is a big win for the community who wants it to be retail or housing and not offices.
But in about three years they will ditch the lease, as will many other companies in similar situations. This is just the beginning.
On the plus side, here in Cupertino there has been an eternal debate what to do with the empty land the old mall used to sit on. They wanted to build 3M square feet of office space, but now they probably won't do that, which is a big win for the community who wants it to be retail or housing and not offices.
> They wanted to build 3M square feet of office space, but now they probably won't do that, which is a big win for the community who wants it to be retail or housing and not offices.
This is the real point of opportunity. Rather than the well-meaning but economically unviable push to convert office buildings into housing, the most attainable goal right now is to prevent new offices from being built and build housing on that land instead.
This is the real point of opportunity. Rather than the well-meaning but economically unviable push to convert office buildings into housing, the most attainable goal right now is to prevent new offices from being built and build housing on that land instead.
This is the real point of opportunity.
Is it though? If you take away the offices, and offices close, why do people need to live there?
Where will they work?
And if it is 100% remote, why not live where the cost of living, and housing, is 1/2 the cost already?
Is it though? If you take away the offices, and offices close, why do people need to live there?
Where will they work?
And if it is 100% remote, why not live where the cost of living, and housing, is 1/2 the cost already?
Some people do choose to live in cities even though there's no work-related reason to do so--and even put up with incremental inconvenience to commute out to a suburban office park. But, still, when tallying up the pros and cons, taking easier commute off the plate certainly doesn't help the urban apartment side of the ledger.
I wonder for a place like SanFran.
There are many smaller cities, and cities without as many issues as SanFran too. So with remote, there is also the choice of "better managed city".
I wonder if it will empty, or become some apocalyptic landscape, with endless abandoned empty office buildings, and the homeless living in them, and everyone else just gone.
It seems, from the comments here, that SanFran is very poorly run. The robberies, the homeless, the filth on the street, and now, emptiness and presumably maybe budget problems soon.
For example, what if some of the older office buildings are just cut+run? Property management corp X goes bankrupt, or, just decides that it's not worth paying property tax any more.
Sure, the city can seize and sell off property for back tax reclamation, but what if no one even wants to buy? What if eventually 1/2 the office space is just owned by the city, decaying, no property tax, unmaintained?
It could become Detroit, but worse.
There are many smaller cities, and cities without as many issues as SanFran too. So with remote, there is also the choice of "better managed city".
I wonder if it will empty, or become some apocalyptic landscape, with endless abandoned empty office buildings, and the homeless living in them, and everyone else just gone.
It seems, from the comments here, that SanFran is very poorly run. The robberies, the homeless, the filth on the street, and now, emptiness and presumably maybe budget problems soon.
For example, what if some of the older office buildings are just cut+run? Property management corp X goes bankrupt, or, just decides that it's not worth paying property tax any more.
Sure, the city can seize and sell off property for back tax reclamation, but what if no one even wants to buy? What if eventually 1/2 the office space is just owned by the city, decaying, no property tax, unmaintained?
It could become Detroit, but worse.
Did they finally close the AMC in that zombie hellscape?
Oh many years ago sadly. It was my favorite theater because it was walkable.
The mall is gone now, it's a literal hole in the ground while they fight multiple legal battles with the city about what to do with it.
The mall is gone now, it's a literal hole in the ground while they fight multiple legal battles with the city about what to do with it.
Will be interesting to see changes taking place in urban planning as the new era of working from home begins to effect the urban center and suburban areas moving forward. I've noticed it in the lunch spots in my suburban town- all way more crowded than they used to be and went through a transition period where they had to get used to the new volume.
Feels like a new era of some big changes in relation to city planning. Cities will have to build housing to account for the loss in tax base of commercial real estate.
Feels like a new era of some big changes in relation to city planning. Cities will have to build housing to account for the loss in tax base of commercial real estate.
Last I heard there was a housing shortage. Obvious solution would be to turn commercial properties into residential ones.
It's obvious but not easy. Oftentimes commercial spaces don't have a lot of plumbing. They usually just have the one bathroom and kitchen space per floor usually in the middle.
A large office space would need walls and a lot of plumbing work to convert to apartments (and probably a lot more electricity to power multiple kitchens full of appliances).
A large office space would need walls and a lot of plumbing work to convert to apartments (and probably a lot more electricity to power multiple kitchens full of appliances).
So what makes converting existing structures to residential use harder than building new residential buildings on empty land?
I view this as an "outrunning the bear" situation. I.e. you don't need to run faster than the bear, just run faster than your poor friend.
The cost to convert an office tower into apartments is high I'm sure, but is it higher than building a similarly-sized apartment tower from scratch? A lot of money goes into the foundation works and soils engineering.
I view this as an "outrunning the bear" situation. I.e. you don't need to run faster than the bear, just run faster than your poor friend.
The cost to convert an office tower into apartments is high I'm sure, but is it higher than building a similarly-sized apartment tower from scratch? A lot of money goes into the foundation works and soils engineering.
The first thing you would have to do would be to remove much of the internal walls and structure, followed by running new electrical and plumbing. The latter two are very skilled-manual-labor intensive.
And it can rather easily be added on the outside in some isolated ducts. The problem is cutting it down to appartments that correspond to fire safety codes. CAL demands you have two exits, which a office building easily fullfills with two staircases. But how do you do that in a converted apartment building, without loosing tremnedous amounts of space to hallways.
Everyone said the same thing about lofts/industrial spaces. Going by other contexts, the greatest profits will flow to people who Just Do It and make people happy, later seeking forgiveness instead of permission.
So make that kind of residential space... different.
Many of them aren't well-suited to it. Everything from plumbing to window coverage is not designed for it. Zoning also doesn't allow it - have you tried to get a zoning change through SF?
Anyway, you can convert some of them, but it's not an easy journey!
Anyway, you can convert some of them, but it's not an easy journey!
Our building in SOMA did this.
On the other hand, the few times I've gone into Boston or Cambridge during the week, rush hour traffic is as bad as it's ever been as far as I can tell. It's really hard for me to square the evidence of my eyes with narratives about city offices emptying out. Perhaps it's a rather uneven phenomenon.
In NYC the explanation is pretty simple. Weekday subway, bus, and train ridership is about 60% of pre pandemic levels. Most of those people are no longer commuting at all, but some percentage have switched to driving.
The percentage numbers don’t quite tell the whole story, either. There are two million daily riders missing.
https://new.mta.info/coronavirus/ridership
The percentage numbers don’t quite tell the whole story, either. There are two million daily riders missing.
https://new.mta.info/coronavirus/ridership
Fewer people are going into the office, but a higher percentage of those that are going in are driving instead of taking mass transit.
The level of traffic remains the same because the biggest incentive against driving is the traffic. Therefore, the traffic will always remain at the highest tolerable level, unless additional disincentives (such as congestion pricing) are introduced. This is commonly known as induced demand.
The level of traffic remains the same because the biggest incentive against driving is the traffic. Therefore, the traffic will always remain at the highest tolerable level, unless additional disincentives (such as congestion pricing) are introduced. This is commonly known as induced demand.
>a higher percentage of those that are going in are driving instead of taking mass transit
I can believe that. I think I've only taken the train in once. (Not because I was avoiding it but because it didn't align with my schedule.) And there were a fair number of empty seats at the point it would have probably have been standing room only pre-pandemic. But sample size of one and this was a number of months ago.
That said, my overall observation is that things are probably closer to back to normal than in some tech industry bubbles.
I can believe that. I think I've only taken the train in once. (Not because I was avoiding it but because it didn't align with my schedule.) And there were a fair number of empty seats at the point it would have probably have been standing room only pre-pandemic. But sample size of one and this was a number of months ago.
That said, my overall observation is that things are probably closer to back to normal than in some tech industry bubbles.
Well, the type of job you can work from home at, is limited. Only a small minority of people are working from home.
Think of all the trades(mechanics, construction, plumbing, builders, etc). Think of all retail workers. Think of manufacturing.
That's already well more than 1/2 the jobs out there, and there are more.
I would be surprised of more than 10% of people, are wfh.
Think of all the trades(mechanics, construction, plumbing, builders, etc). Think of all retail workers. Think of manufacturing.
That's already well more than 1/2 the jobs out there, and there are more.
I would be surprised of more than 10% of people, are wfh.
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I don't believe WFH will last as long as people think it will
Companies that own their empty offices (e.g. the FAANGs) are definitely going want them full because of sunk costs, and then hope all the other smaller companies cargo cult them.
It probably will work.
A better world is possible, and it's actively sabotaged by entrenched interests.
It probably will work.
A better world is possible, and it's actively sabotaged by entrenched interests.
FAANG is actually changing faster than you'd believe.
I've been at Microsoft and now Amazon; they're both extremely remote friendly. Offices have been largely empty so they've not renewed most of the expiring leases.
Some functions still need to be performed in-person so they'll have some space but no longer the everyone comes to office to put on noise cancelling headphones to work individually mostly. And even that space is getting distributed across the country and not concentrated in SF/Seattle
I've been at Microsoft and now Amazon; they're both extremely remote friendly. Offices have been largely empty so they've not renewed most of the expiring leases.
Some functions still need to be performed in-person so they'll have some space but no longer the everyone comes to office to put on noise cancelling headphones to work individually mostly. And even that space is getting distributed across the country and not concentrated in SF/Seattle
Google, Apple, and Facebook have spent literally billions on now empty office space.
The contrast to lab rents and the bay area life sciences market is striking. [1]
Near 0 vacancies, rising rents[2] and a huge boom in construction.
It'll be a painful shakeup, but eventually the market will normalize to a price where renovating office space for labs and new hybrid work environments makes sense. Anecdotally, family and friends in structural and architectural fields in the bay are busier than ever with these types of retrofits.
1 - https://kidder.com/market-reports/san-francisco-life-science... 2 - https://www.bizjournals.com/sanfrancisco/news/2021/11/12/bay...
Near 0 vacancies, rising rents[2] and a huge boom in construction.
It'll be a painful shakeup, but eventually the market will normalize to a price where renovating office space for labs and new hybrid work environments makes sense. Anecdotally, family and friends in structural and architectural fields in the bay are busier than ever with these types of retrofits.
1 - https://kidder.com/market-reports/san-francisco-life-science... 2 - https://www.bizjournals.com/sanfrancisco/news/2021/11/12/bay...
Much as I would like the opposite to be true, it's good to see the reality check at the bottom:
> And once again, while tempting to see or promote an opportunity to convert all the vacant office space into housing in a response to San Francisco’s housing woes, the conversion of existing office space to residential use currently makes no economic sense for the vast majority of downtown San Francisco buildings, due to the relative value of each use and the cost of conversion.
Residential conversion always comes up in these discussions, but the truth is it's a much more limited opportunity than it appears at first glance.
> And once again, while tempting to see or promote an opportunity to convert all the vacant office space into housing in a response to San Francisco’s housing woes, the conversion of existing office space to residential use currently makes no economic sense for the vast majority of downtown San Francisco buildings, due to the relative value of each use and the cost of conversion.
Residential conversion always comes up in these discussions, but the truth is it's a much more limited opportunity than it appears at first glance.
People said that before and it was true before - office space truly was more profitable - but now things have changed. Drastically.
So things that would've been conventional wisdom for 100 years, that were true for each generation, have suddenly stopped being true.
When people say 'no residential' I would say: what's your alternative?
Office space - obviously failing, why we're having this discussion.
Restaurant/coffeeshop/cafe space - nope, too much of it. Not viable.
The only option left is residential.
To be clear, if someone can come up with a better option in 2022 than residential, I'm happy to say I was wrong. But what it is? I just covered the possibilities. There's nothing else.
There's only one thing that can happen, at this point: landlords can keep their spaces unrented. Or they can convert them to residential. There is no third possibility. That's all there is.
So things that would've been conventional wisdom for 100 years, that were true for each generation, have suddenly stopped being true.
When people say 'no residential' I would say: what's your alternative?
Office space - obviously failing, why we're having this discussion.
Restaurant/coffeeshop/cafe space - nope, too much of it. Not viable.
The only option left is residential.
To be clear, if someone can come up with a better option in 2022 than residential, I'm happy to say I was wrong. But what it is? I just covered the possibilities. There's nothing else.
There's only one thing that can happen, at this point: landlords can keep their spaces unrented. Or they can convert them to residential. There is no third possibility. That's all there is.
Indeed, I wonder that too: when push comes to shove and the commercial office market is left with billions of dollars in worthless real estate, what happens next?
My hunch is that you're right, but that it will follow a different pattern from what is popularly imagined. I think we tend to have this lofty vision of office towers being converted into no-frills, affordable homes that will offer working-class families a place to live close to where they work, but this vision doesn't really match with economic reality.
Much more likely in my view, given present residential construction macro-trends and the actual costs of residential conversion, is this: A slow process of converting the buildings that are currently losing the most money into luxury housing. The conversions will be massively expensive, in some cases more than the cost of new construction, but they will happen.
The upside of this, while much more limited in scope than the popular conception of residential conversion, is that it will increase the housing supply, and stands a chance to ultimately improve affordability as those who can afford it upgrade to higher-end homes.
My hunch is that you're right, but that it will follow a different pattern from what is popularly imagined. I think we tend to have this lofty vision of office towers being converted into no-frills, affordable homes that will offer working-class families a place to live close to where they work, but this vision doesn't really match with economic reality.
Much more likely in my view, given present residential construction macro-trends and the actual costs of residential conversion, is this: A slow process of converting the buildings that are currently losing the most money into luxury housing. The conversions will be massively expensive, in some cases more than the cost of new construction, but they will happen.
The upside of this, while much more limited in scope than the popular conception of residential conversion, is that it will increase the housing supply, and stands a chance to ultimately improve affordability as those who can afford it upgrade to higher-end homes.
Well there is a fourth option. Extensive lobbying by corporations who own a ton of realestate to force people back into the office by giving tax incentives to corporations who have in office workers.
> due to the relative value of each use and the cost of conversion
Presumably, the relative value will change at some point if demand for office space falls off a cliff.
I also suspect there are public policy factors that could be brought to bear. Vacancy taxes (perhaps even scaling with vacancy volume) are underused. Put them into place, use the revenue to fund pilot conversion projects, prizes for innovation on that front, and eventually perhaps subsidies.
As always, incentives matter. But often overlooked is that incentives are malleable.
Presumably, the relative value will change at some point if demand for office space falls off a cliff.
I also suspect there are public policy factors that could be brought to bear. Vacancy taxes (perhaps even scaling with vacancy volume) are underused. Put them into place, use the revenue to fund pilot conversion projects, prizes for innovation on that front, and eventually perhaps subsidies.
As always, incentives matter. But often overlooked is that incentives are malleable.
It's for sure a limited opportunity for now, but the bottom still hasn't properly fallen out of the market for office space IMO, and I think many owners are still clinging to hope that their investments aren't completely trashed. Also if vacancy rates keep rising, at some point the city will probably look to institute an office -> residence conversion program. Empty offices are good for no one.
But it's really hard to say how this plays out. Time will tell.
But it's really hard to say how this plays out. Time will tell.
I'm trying to imagine how you refit plumbing and elevators on a commercial building.
The office building we have at work has 6 toilets per floor, and each floor is probably 50,000 sqft. If you replaced that with residential, you'd end up with, like, 70 toilets per floor, plus 50 showers, 70+ sinks, ... I mean holy crap. There's only three elevators. That'd probably work? Maybe?
Plenty of parking, though.
The office building we have at work has 6 toilets per floor, and each floor is probably 50,000 sqft. If you replaced that with residential, you'd end up with, like, 70 toilets per floor, plus 50 showers, 70+ sinks, ... I mean holy crap. There's only three elevators. That'd probably work? Maybe?
Plenty of parking, though.
My impression is that modern office buildings are basically stacks of exhibition halls. You can repurpose them easily and build the infrastructure you need. The biggest obstacle to converting them to residential is not plumbing or elevators but the lack of windows near the core.
Of course, it's not the modern centrally located office buildings that are vacant but the older ones at more remote locations. Converting those is going to be more expensive, and it may be more cost-effective to simply demolish them and build new residential.
Of course, it's not the modern centrally located office buildings that are vacant but the older ones at more remote locations. Converting those is going to be more expensive, and it may be more cost-effective to simply demolish them and build new residential.
A guest on a KQED mentioned this a month or two ago; SF building code requires a certain amount of natural light for bedrooms and other rooms (Kitchen, home office, media rooms excepted.)
Many of the older office spaces in SF might be impossible to convert under current standards; the city may have to exempt conversions from those rules or something. They might do if if the moneyed interests lobby for it.
Many of the older office spaces in SF might be impossible to convert under current standards; the city may have to exempt conversions from those rules or something. They might do if if the moneyed interests lobby for it.
What about instead of turning a floor of an office building into a handful of luxury apartments, turn it into several dozen SROs? (genuine question -- I am curious if the same economic unfeasibility concern would apply equally for very small SRO-style units)
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I'm curious to see if this change in the urban landscape is going to lead to a modern office loft type situation like NYC saw in the 60-70s with former commercial spaces being available under specific tenant laws to artists.
Right now developers say it’s too expensive. Some data and a potential path forward: https://www.sfchronicle.com/sf/article/empty-offices-housing...
They weren’t legal in NYC until 1982, I believe, but people lived in them anyway during the 60s and 70s. Fire marshals would knock on the door and kick people out. The 1982 loft law provided a road map for these spaces to get a certificate of occupancy without screwing over the existing tenants.
I suspect this kind of thing wouldn’t happen unless we saw a real drop in the value of office space in SF, and if it did, it wouldn’t be like NYC.
I suspect this kind of thing wouldn’t happen unless we saw a real drop in the value of office space in SF, and if it did, it wouldn’t be like NYC.
Really appreciate the socketsite blog/forum and the stories and price comparisons, etc., that they publish.
Recommended.
Recommended.
WFH is going to have a huge impact on urban planning. But then again when did the urban planners really did work for the benefit of all the people?
If you have a huge house with a garden and can work from home I think you just won the lottery.
All the good urban planning in European cities I think comes at the expense of comfort of how people live.
If you live in a 85sqm in a city you are lucky but probably pay too much for rent anyway and have to suffer noisy neighbors and construction.
If you have a huge house with a garden and can work from home I think you just won the lottery.
All the good urban planning in European cities I think comes at the expense of comfort of how people live.
If you live in a 85sqm in a city you are lucky but probably pay too much for rent anyway and have to suffer noisy neighbors and construction.
> All the good urban planning in European cities I think comes at the expense of comfort of how people live.
I think it's just a question of which comforts you prioritize. European cities are maximize healthy transportation and access to services/urban leisure. Suburbs maximize personal space and privacy, and in some cases outdoor access. To describe one as uncomfortable is to project your own personal preferences.
I think it's just a question of which comforts you prioritize. European cities are maximize healthy transportation and access to services/urban leisure. Suburbs maximize personal space and privacy, and in some cases outdoor access. To describe one as uncomfortable is to project your own personal preferences.
I would think this is a lower bound too, since there's a lot of companies with long leases signed before the pandemic either eating crow or subletting until the lease expires.
And then if you count all the companies doing a return to office motion just to justify the real estate, it could go even higher...
I don't think we will know the true impact of the WFH era for another few years.
And then if you count all the companies doing a return to office motion just to justify the real estate, it could go even higher...
I don't think we will know the true impact of the WFH era for another few years.
I'm curious to see what will happen with the bagholders of office real estate. Will they try to reinvent themselves as mixed use residential/commercial? Or is it possible we will see a wave of defaults as vacancy rates continue to climb?
Do we know how much of commercial real estate is owned by foreign entities? ie. Chinese elites laundering money out of China into the West? I wonder if they have any protections to save their investments or is their money made from value generated in China just literally disappearing?
Office to residential conversions are pretty tough. I don't think we'll see a ton of them.
I don't think there is a fundamental reason for that. Office buildings are designed to be reconfigured. I guess you'd need to rip out + replace the plumbing + HVAC (or only put in a few ultra-luxury units per floor).
Office buildings tend to have all their plumbing centrally located. Converting to residential means spreading it all around. It's not like just moving partitions around.
Sprinkler systems tend to be evenly distributed around floors so the conduits etc. to run additional piping are already in place. Not every building has such systems but most constructed after 1980 do.
The sewer pipes and vents have to be run everywhere, and they have specific requirements. Sewer pipes, for example, half to have a slope. The vent pipes have to go up. There may be floor loading problems. There's going to need to be a lot more electrical wiring.
It's not impossible, it's just expensive.
It's not impossible, it's just expensive.
I've noticed how many fluff-filled articles I see lately about 'needing to get back to the office' in many publications that seem to have a large number of advertisers selling office space. I don't have any numbers, but it seems pretty crazy how many of these have been popping up in different 'business journal' types of sites.
It's not crazy at all. Our entire society is built around exploitatively extracting maximum value from each other and that often requires creative marketing to invent want where none existed before.
There's going to be a massive PR campaign to get employees back into the office. Story after story about how going back to the office increased productivity etc etc. They're going to give businesses the hard sell to lease office space again and get their employees back into the office.
Not everyone will go along with this, but if they could get 80% of the people back it'll probably be enough to prevent commercial real estate from collapsing.
Not everyone will go along with this, but if they could get 80% of the people back it'll probably be enough to prevent commercial real estate from collapsing.
Commercial real estate gonna go boom.