In San Francisco, View Office Rents Keep Going Up

Office suites with a view of the bay are bucking the downward trend seen elsewhere in the San Francisco commercial market, as employers look to trophy amenities to bring their workers back, according to CBRE.

In downtown SF offices, rents for offices with prime view space, which CBRE defines as an unobstructed view of the San Francisco Bay with outlooks of either the Golden Gate Bridge to the North or Bay Bridge to the East, have trended higher since the pandemic. Between 2019 and 2022, the annual average effective rent, which accounts for escalations and free rent over the lease term, in these view suites increased 9.5 percent to more than $112 per square foot. Class A effective rents overall fell by nearly 5 percent during the same period to about $80 per square foot.

When the office market has low supply and high demand, as it did pre-pandemic, tenants are forced to accept higher rents on non-premium space because that’s all they have to choose from, according to Colin Yasukochi, CBRE’s data head. But when tenants have more choices, as they in the current market, those non-premium offerings become discounted while the cost for prime view space increases. That trend is heightened during this cycle because “tenants have been seeking out prime view space to attract employees back to the office and establish a new hybrid work environment,” he said.

CBRE looked at 40 Class A office buildings in the central business district and found that within that 23 million square feet of office space, less than 40 percent of offices have unobstructed views of the bay. The lack of supply led prime view space to a vacancy rate of 9 percent in the fourth quarter of last year, compared with more than 21.3 percent for all Class A buildings downtown.

Overall, CBRE figures showed a 27.6 percent office vacancy rate in the city during the fourth quarter, with about half of all office space available in submarkets such as West SOMA and Yerba Buena. Mission Bay is the most in-demand market and it still has a quarter of its office space available.

Last year, commercial agents pointed to trophy buildings with view space as by far the most desirable in the city. Even as tech sheds jobs and many buildings increase their tenant agent commissions by 50 percent, professional service companies, law firms and boutique financial service companies are signing long-term leases on Class A view space, even though there are few incentives and the rents are even higher than before the pandemic, agents said. Avison Young data shows that foot traffic at these trophy properties are also higher than in the rest of the office market, showing that these companies aren’t just signing leases, their employees are showing up to work in greater numbers as well.

Companies are unlikely to give up their new trophy space now that they have it and have no issue paying more for their top-of-the-world views, according to Avison Young Principal Ross Robinson.

“The best of the best doesn’t come available all that often, because once you have something that’s really incredible and unique, you don’t leave it,” said Robinson said. “If you’re a financial services company and very profitable, the difference between $80 a foot in rent and $100 a foot in rent on 10,000 square feet is negligible.”