San Francisco\u2019s office leasing boom shows no signs of slowing down, and its effect on the greater region \u2014 especially Silicon Valley \u2014 is accelerating.\u00a0<\/p>\n
The Bay Area has always sustained on a geographic symbiosis, though experts say this latest boom is peculiar because of its inversion. In previous up cycles, the anchor companies often started in Silicon Valley \u2014 think Google, Meta, Apple \u2014 and eventually expanded north to capture the young, urbanite talent of the big city. In the artificial intelligence era, San Francisco plays well spring for the billion- and trillion-dollar companies, which are increasingly headed toward the pools of spacious offices and campuses in Silicon Valley. Soon, experts say, it could even quench Oakland\u2019s commercial investment drought.\u00a0<\/p>\n
Some of the most notable leases of the past six months came from San Francisco companies seeking Santa Clara County digs. In February, chatbot behemoth OpenAI signed a 450,000 square-foot lease in Mountain View. In recent months, Sunnyvale has lured companies from Apple<\/a> to Pinterest<\/a>, and AI software firm Databricks has been rapidly assembling a 635,000 square-foot campus<\/a> there. The city cut its vacancy rate from 15.2 percent to 9.8 year-over-year, according to Colliers.<\/p>\n Artificial intelligence\u2019s southward expansion has helped Silicon Valley\u2019s vacancy fall to 14.1 percent, making it the belle of the Bay Area ball, per Colliers. At this time last year, Silicon Valley\u2019s vacancy rate held around 16 percent.\u00a0<\/p>\n The momentum has inspired some major tenants to double down on the region. Cybersecurity firm Palo Alto Networks renewed its 941,000 square-foot lease at the Campus at Scott complex in Santa Clara, and semiconductor company Advanced Micro Devices renewed its 314,000 square-foot office on Augustine Drive in Santa Clara Square.<\/p>\n Companies are also rethinking their sublease strategy. In the heat of the work-from-home era, Google had put nearly 2 million square feet of its Silicon Valley office space on the market for sublease. Then, earlier this year, the tech titan pulled it back. Sources told the San Francisco Business Times <\/a>that competition could have motivated the move, as rival OpenAI was said to be touring some of the space for its own Silicon Valley expansion. The company could also be calling workers back to the office, or may need more space for AI research and development.\u00a0<\/p>\n Google\u2019s reclamation of its space fits a larger trend in Silicon Valley. Only 1.3 million square feet of subleasable office was available at the end of the quarter, the lowest mark since 2016.<\/p>\n \u201cThat speaks to the strength of the market,\u201d said Mike Pham, a research analyst at Colliers who focuses on Silicon Valley. A sublease, he said, often indicates \u201ca screaming deal,\u201d on office space. However, as office space becomes more valuable throughout the Bay Area, landlords would rather terminate a lease and test the market than watch their space go for an unnecessary discount.<\/p>\n Time to build?<\/p>\n In San Francisco, the flight to quality has sent rents for premium spaces to $140 per square foot, a 40 percent increase year-over-year, according to JLL.<\/p>\n This kind of trophy space typically involves vistas of the San Francisco Bay, with at least one of its famous bridges in-view. Today, only about 5 percent of this space in San Francisco is vacant, roughly 52,000 square feet, according to Chris Pham, senior research analyst with JLL.<\/p>\n The citywide vacancy rate still sits somewhere between 28 and 32 percent, with average asking rent sitting at $66 per square foot \u2014 less than half of the cost for a typical trophy space. This spread in rents and vacancy rates between the top and middle of San Francisco\u2019s inventory is unique, Pham said, and still widening.<\/p>\n