San Francisco Peninsula office market reports

Following four consecutive quarters of declining absorption, Q2 2024 reported an increase in net absorption as a percentage of inventory. A slowdown in newly delivered space has helped stabilize net absorption by limiting the amount of new vacant space. In 2021, well over two million square feet was delivered, with only a small percentage of that space pre-leased to occupiers. This contributed to higher vacancy levels, which in turned into dampened net absorption levels coupled with weak leasing activity.

With the consolidation of major tenants especially those in tech across the Silicon Valley, Q2 2024 figures show that sublease availability is at an all time high. The submarkets of Menlo Park, San Carlos, Redwood City and San Mateo make up more than half of all the sublease space on the San Francisco Peninsula. San Carlos and Menlo Park show a large percentage of 34% and 26% respectively.

Overall leasing activity continues to fall below the 5-year pre-COVID average, as many companies continue right-sizing initiatives. Despite the lackluster leasing activity rental rates ironically have continued to maintain values with a balance in flight to quality in Trophy and Class A coupled with a downward trend in commodity Class B space that are witnessing higher vacancy levels. There is also a bit of a lag with landlords lowering rents as they try to maintain asset values to meet lender requirements.